Monday, December 15, 2014

Low oil prices could revive world economy but hard times are ahead for Malaysia

by V. Thomas
Free Malaysia Today
15 December 2014

Oil prices are tumbling down in a descent that is fueled by the weak global economy and the increased shale gas production in the US. The US had made much efforts in the past few years, backed by technology and investments, to free itself from over-dependence on Middle East oil.

With ISIS posing a major regional threat that could throttle oil production in the volatile Middle East, the US and other nations are wary of the economic consequences. This is the main reason for the intense shale production in the US.

In the future, oil prices will be more stable and affordable, and the oil windfall for the OPEC countries could be a thing of the past.

Saudi Arabia’s strategy of keeping oil prices low to drive out US shale gas supplies is a no-brainer. It is not going to have a major effect. The US will do its best to maintain shale gas production, including subsidising it, for its domestic use. The days of using oil as a weapon against the US are truly over. President Barack Obama, being more of a statesman than a politician, has done much to relieve the US of such threats.

The Middle East is in turmoil and nations too dependent on oil from the region must plan and prepare themselves from any eventuality by opting for other sources of fuel.

In the short term, major oil producers like Russia, Iran, Venezuela, Indonesia and others who depend much from oil export revenues could be in trouble.

For Malaysia, hard times are ahead and the days of carefree spending with Petronas profits are surely over. We know how much our government has abused our petrodollars. For example, the administrative capital of Putrajaya – which should be called Petrojaya instead – was built using billions of petrodollars when this precious money could have been used fruitfully for more important programmes and initiatives to diversify the economy so that we wouldn’t be too reliant on a depleting resource.

How the low price of oil is going to affect international politics and economics in the new year is yet to be seen. The US shale gas production is here to stay and is going to reduce and stabilize oil prices for the good of the global economy. The immediate beneficiaries will be major economies like China, Japan, India, the EU and the US itself. These economies could be re-energised, bringing multiplier or spillover effects for the world economy.

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