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There have been significant revenue losses in energy exporting nations, and in the last few days, US oilfield services firm Halliburton announced that it would have to cut 8% of its global workforce due to a “challenging market environment”. That said, the news has not all been doom and gloom, with many consumers feeling the relief off lower retail pricing.

Why has there been such instability?

World oil pricing between 2010 until mid-2014 was consistently stable at approximately $110 a barrel. However, since June last year those prices have more than halved. The reasons for this include the fact that there has been weak demand in many countries due to meek economic growth and because oil production is surging on regardless.

Winners and Losers?

Russia

As one of the biggest oil producers in the world, Russia has been struck particularly hard by the downfall in the price of oil as energy accounts for 70% of the country’s export incomes. In other words, Russia loses about $2bn in revenues for every dollar fall in the oil price, and the World Bank has warned that Russia’s economy would shrink by at least 0.7% in 2015 if figures do not recover.
They have refused to cut production in order to shore up oil prices because of fears that they would lose their place in the market.
Russia is also under pressure due to western sanctions following their support of separatists in eastern Ukraine.
The two issues have meant that the Russian government has had to cut spending and raise interest rates to 17%, meaning that any potential for economic growth has become very difficult.

Venezuela

A country that was already in trouble due to the mismanagement of the economy no faces some very difficult decisions. On the edge of recession, and with inflation at 60%, they need to implement spending cuts but where? They already have some of the world’s cheapest fuel prices?

Saudi Arabia

The most influential oil exporter in Opec’s arsenal and the world’s largest oil exporter. They could most certainly cut back on their own production, thus supporting global oil prices, but there is little sign that they intend to do anything of the sort.
In the long term, they too need oil prices to recover, but in the short term their pockets are deep enough. If they continue to produce oil at their current rate, they put the US under pressure and instil discipline amongst the other Opec members.

Nigeria

Africa’s biggest oil producer and one of the less influential members of Opec, has seen growth across the majority of its economy, but remains oil dependent. Unlike Saudi Arabia, Kuwait and United Arab Emirates it has less flexibility in terms of its budget to sustain current oil pricing.

Europe

Struggling economies in Europe are benefiting from lower oil pricing, due to low inflation and weak growth becoming a running theme across the continent. A 10% fall in oil pricing should lead to a 0.1% increase in economic output suggest some advisers. Generally, consumers benefit through lower pricing, but in the long term these benefits may be eroded by low inflation rates.

Asia

China should benefit from lower oil prices as they become the larger net importer of oil, but this will not stem the full effect of a slowing economy.

Japan has a plan to battle deflation, but it involves push inflation higher. The only way they can do that is to raise the cost of energy. On the other hand, they import all of their oil, and so lower costs are a mixed blessing.

India imports 75% of its oil, and as a result analysts are buoyant about the positive affect low oil pricing will have on the country’s deficit.

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