The Winners and Losers of Oil’s Decline

It’s no well kept secret that the sharp decline in oil prices is having sweeping effects across the global economy, but the ramifications of this dip have varied dramatically country to country.  The dramatic price shock (oil hit a five-and-a-half-year low Friday after falling below $50 a barrel, per Bloomberg) poses a major threat to petroleum-dependent countries like Venezuela and Russia, and to the titans that are the world’s energy companies.  For now though, things are looking pretty good for the U.S.  Although the Wall Street Journal projects energy companies to report a 19.1% fall in fourth quarter earnings for 2014, the Dow and the S&P have recently set record highs and December’s job report has lent confidence to the U.S. economy.  The hit to the energy industry is partially offset by businesses that have benefitted from lower prices: those dependent on transportation, and those dependent on consumer spending, which should rise as households save more on gas.

The impact of oil’s plunge isn’t merely economic though – petroleum has the power to reshape the world’s political landscape, as we’ve seen so many times in the past.  In this case, things seem to be shifting in the favor of the U.S., with weak oil prices providing, as David Goldwyn puts it in the Washington Post, “great serendipitous leverage” for the U.S. over countries it has been at odds with on political issues.  The U.S. has been applying economic pressure to both Russia and Iran in the form of sanctions in an effort to impose policy resolutions regarding the former’s involvement in Ukrainian separatist movements and the latter’s nuclear program.  Falling oil prices work in favor of the U.S. by putting further pressure on these two nations, which rely heavily on petroleum exports.  Another U.S. foe that supports itself on oil sales is the Islamic State, which will see a constriction on its revenue stream that will hopefully hit the organization hard.

The current market for oil could be quite beneficial for the U.S. in the long term as well, as investors may begin to see more merit in renewable energy sources, helping the country catch up to  nations leading the way in green energy.  Recently, one of the biggest backers of renewables has been Google, which just invested $188 million to build Utah’s biggest solar plant, and has invested $1.5 billion total in renewable energy, according to the Wall Street Journal.  It’s not just solar energy that’s been seeing recent investing activity though; the Journal also reported a $150 million acquisition by uranium producer Energy Fuels Inc.  If current oil prices are here to stay, we may be seeing the beginning of a long-term flow of capital away from petroleum investments and towards renewable energies that look more and more appealing every day.

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