Today, in light of the drastic decrease in the price of oil, I want to discuss the effect of this issue on the United States and international politics. It is unclear what the long term consequences of cheap oil will be. While Americans today may applaud the sharp decrease in gas prices, this development could actually devastate the US economy and these same average Americans who once praised the $30 price tag on their suburban fill-ups could face an economic crash and quickly degrading environment.
To understand the interplay among nations in the oil-based economy pervasive in developed nations, one must understand the formation of OPEC in the 20th century. OPEC stands for the Organization of Petroleum Exporting Countries. It is a group of nations primarily in the Middle East committed to protecting their portion of the world's oil supply.
The countries in OPEC are pictured below:
With the recent surplus in oil, the nations in OPEC failed to reach an agreement to protect their monopoly on the world's most precious commodity. This decision unleashed the invisible hand of the market, following the simple laws of supply and demand. With too much oil and not enough demand, the price of oil decreased sharply and has consequently fomented instability and insurrection.
In effect, the drastic reduction in price of oil, generally favored in the United States, has destabilized the international marketplace and, while it may have infused the lives of Americans with plenty and prosperity, the future remains uncertain.
Some argue that, with the diversification of the United States economy and the shift away from fossil-fuel based transportation throughout the world, oil will never again be $100 a barrel. Instead, when the cheap oil runs out, the average American will have many different alternatives. In this case, reduction of oil prices will actually have no detriment to the global economy. Instead, people in developed nations will turn to cars which run off of renewable resources.
This car (BMW i3) is an example of diversification. BMW, along with some other major car companies, has introduced all-electric vehicles. Once this technology becomes widely available for the average consumer, dependence on oil will become a thing of the past.
But....this bright future represents only one outcome of cheap oil. If the oil surplus runs out or OPEC reaches an agreement to decrease production before the new technology is widely available, the United States economy will face extremely expensive gas and an economic downturn.
Thus, the implications of cheap oil reach beyond the simple facts of $30 fill-ups and more money to spend on eating out and going to movies. It may trigger an end to the era of oil-based transportation in the United States. Or it may plunge the United States back into an economic downturn in addition to destabilizing the economies in oil-producing nations.
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