Cheaper Oil: Chaos or Prosperity?

Could “Falling oil prices could spark global turmoil?” Steve Hargreaves seems to think so in his piece by that name published on CNNMoney. While mentioning some economic benefits of falling oil prices, the article focuses on how a significant drop in oil prices could lead to geo-political instability, especially in OPEC nations and other oil exporting countries. However, it’s important to note the myriad of geo-political positives that could result from a drop in oil prices and how these could outweigh the negatives.

First, even in the oil exporting nations mentioned in the piece, decreased oil revenues could defund extremist groups of various sorts – from violent ideological groups to recognized terror groups. This surely could have a stabilizing effect in the Middle Eastern and Muslim nations where most terror attacks occur.

Second, government sanctioned atrocities by autocratic petro-dictatorships, such as the genocide in Darfur, would be less likely to occur were it not for oil-revenues that fund the forces who are charged with enacting these policies.

Third, a drop in prices could force countries that are dependent on oil revenues to develop an economy beyond the oil sector that keeps its rulers afloat. This would mean investing in infrastructure and in educating the populace. Such investments would have the dual benefit of leaving less money to fund the rampant corruption and cronyism that plagues these nations while improving economic conditions for the nation as a whole.

Lastly, a decrease in poverty brought about by expanded access to oil, lower food prices and the resulting economic windfall, could stabilize restless populations and usher in a new global era of prosperity. This effect could be especially pronounced in oil-poor countries like Egypt, where expensive imports have led to severe gasoline shortages, and in African nations where farmers often forego fertilizer purchases when oil prices rise.

Since oil permeates all sectors of our economy, national security, international relations and so much more, a major shock to oil prices, up or down, would have many effects. While I fail to see any major benefits from a rise in oil prices, it seems clear that if oil prices were to drop, the positives would outweigh the negatives on a global scale.

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