Don’t count on the current low prices at the pump (under $2/gallon in Florida right now). Oil producers can’t afford to keep prices this low for long.
According to the International Monetary Fund (IMF), low oil prices could have a devastating affect on Saudi Arabia, the richest oil producing country in the Middle East. Said to have over $700 Billion in cash reserves, their deficits are draining that reserve at a rate of $12 Billion per month. Low prices have affected many other oil-producing countries as well.
Saudi Arabia is a bloated socialist economy, it has very little in the way of productivity other than oil production. Oil production is controlled by the royal families and money is doled out in amounts proportionate to loyalty and disproportionate to productivity.
As we mentioned in yesterday’s Bernie Sanders article, socialism always needs external resources to support itself and always eventually destroys itself.
This is a good illustration.
Even with the vast oil revenues of Saudi Arabia, this country of fewer than 30 million people, cannot function on the income at the lower pricing. It has become so lucrative for individual Saudis to associate with oil and get those high salaries they can’t afford to create other kinds of production.
This also has effects on motivation. At one point the Saudi Government was offering $1 million/per year for native Saudi jet pilots. They got few takers, their air force is dominated by American and British mercenaries.
The added effect of the lack of income in the short term could be unrest and instability in the region.
Our conclusion is rather than go broke, the OPEC nations will raise the price of oil, and we will once again see $4/gallon gasoline by next summer. With no effective energy policy, we have little choice but to take it.