The world is on a turning point with the plummeting oil prices. This has multiple ramifications across the economic & political scenario around the world.
1.China&India
With the Chinese economy slowing down, the consumption of oil has slowed down over the last 2 years. With the Chinese stock market going on a tailspin over the last few months, the FDI to the Chinese market is bound to decline.
With the other big weight India opting for nuclear energy and solar energy to replace its dependency on fossil fuels, the import of oil in these two guzzlers is further going to reduce in the coming decades.
2.Fracking technology
The US has successfully employed fracking technology to tap into its reserves in Texas and North Dakota to reduce its dependency on oil from OPEC. This has pushed in excess of oil into the market. Saudi Arabia has increased the production of oil into the market as a counter strategy to US to make it unprofitable for US companies like BP to remain profitable.However,US has so far shown no inclination to reduce production using fracking.
3.Iran back in business
The recent lifting of sanctions on Iran has allowed it further pump in crude oil to the market. The straining of relations between Iran and Saudi after the recent execution of a Shiite cleric in Saudi Arabia has made Iran go on a fight mode with the Saudi’s. Reports suggest that Iran is willing to sell oil at even a loss so as to make Saudi go off the radar completely.
4.Falling hegemony of Saudi Arabia
Saudi Arabia is expected to run out of money if oil were to stay at around the 25 $ per barrel mark for another 5 years. At present Saudi has a healthy forex reserve of more than 700 billion dollars. The Saudi government has started cutting down on austerities and subsidies offered to its public with the fall in oil prices. They would like the oil price to remain around the $100 per barrel. However this looks highly unlikely and oil prices are expected to remain in the range of 45 – 55 $ per barrel over the next decade. It has become increasingly clear that the Saudi hegemony is going to continually decrease in the coming years.
War in the Middle East
Latest reports prove that with Russia and Iran’s support, Assad has been able to gain ground in Syria. The Americans did not expect Putin to jump into this game. However Putin has played a masterstroke here from being a political pariah to stealing the carpet under Obama.
Saudi Arabia has been reluctant to send in its army with it already being involved in a war with Yemen. However it’s a well-known secret that the biggest financiers of ISIS has been Saudi.The US foreign policy of supplying arms to Saudi has been the biggest hypocrisy of the 21st century. Next time ,the US goes on a foreign invasion,you can bet that it would face stiff opposition from Iran,Russia,China and South America.
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