A Thought-Provoking Chart That Cuts Both Ways

One way to gauge support for the price of oil is to calculate the breakeven price. In other words, what is the dollar amount per barrel that would be required for an oil-producing country to balance its fiscal budget? Several factors go into this calculation such as the location (and quality) of a country’s reserves, and the spending habits of the federal government. _EM

It is not difficult to see that some countries rely more upon a higher price for oil than others. Oil dictatorships derive most of their revenue from petroleum, and find themselves whipsawed whenever prices fluctuate according to natural market forces.

Breakeven Price of Oil (Brent) by Country
These governments tend to become dependent upon oil revenues, and grow careless about government budgeting and corruption control as a result. Money that should be spent upgrading oil production infrastructures, is instead diverted to Swiss bank accounts and to purposes of placating the public and paying off cronies in the private sector.

Russia, which is currently the world’s largest oil producer, has leaned on the profits of the natural gas and crude oil exports to account for nearly 14 percent of the country’s GDP in 2010. But Russia isn’t the only export-dependent country. Many countries in the Middle East, such as Saudi Arabia and Iran, have used oil profits to ease “Arab Spring” tensions by financing public programs.

However, Carnegie notes that the fiscal budgets of many oil-exporting countries were rising prior to the citizen revolution due to a lack of non-oil revenues, rapid population growth and generous welfare systems. For example, Saudi Arabia, which generates 80 percent of its government revenue from the petroleum sector, has increased government spending roughly 54 percent since 2008. Other countries such as the UAE (up 48 percent), Bahrain (up 53 percent) and Qatar (up 59 percent) have seen government spending increase over the same time period.

Carnegie says the result is “OPEC countries have stronger incentives to defend higher oil prices, i.e. any drop in the oil price could mean lower OPEC production in order to try to secure higher oil prices.” It also means these countries are “less likely to invest in building additional production capacity.”

This only adds to our argument that we could see oil prices continue at their current levels despite a weaker global economy and softening demand for oil. _EM

On the other, concealed side of the chart, are oil-consuming nations and regions, whose budgets are stretched and stressed by these inflated oil costs. So the same thing which helps the oil dictatorships -- high oil prices -- tends to hurt everyone else -- it cuts both ways.

Even the not-so-solid BRICs are split between net energy producers and net energy consumers. Russia in particular is a typical oil-dependent quasi-dictatorship, while India and China are dependent upon energy imports. Brazil is attempting to re-create itself as a global energy powerhouse.

This is a poignant scenario, where oil suppliers have tied themselves over their own oil barrels by overspending, while at the same time their artificial inflation of global oil costs ties most other nations over the same oil barrels.

So while popular news media talk about high food prices or high consumer prices, what they are actually talking about is artificially inflated high oil prices -- necessitated by the corrupt and profligate spending practises of the oil producing nations themselves. The same high oil prices which allow corrupt oil states to survive, are at the same time helping to push the rest of the world deeper into recession.

Of course, even with low oil prices, the problems of debt and demography would still be slowly killing the ineptly led social democracies of the world. But the tragedy could at least be stretched to last a bit longer, without the added costs of high energy expense.

What will be the end result of this global game of tug-of-war? Why, war, famine, pestilence, and all around hardship, of course. When something cannot keep going indefinitely, eventually something will happen to stop it.

Protect your assets. Choose a safe and secure location for yourself and your loved ones. If you can secure a measure of ethical profit in the midst of the chaos, count it a bonus.

On the other side of the inevitable disruption, a whole raft of advanced technologies are backing up, waiting to be utilised by a smarter and wiser bunch of people. The high tech infrastructure will not be destroyed entirely. Enough of it will be left to provide a jump start to a higher level.

We had better get smarter and more capable. Because out there in the real universe are challenges and latent catastrophes that we need to be preparing for -- instead of wallowing in the corrupt faux catastrophes of carbon hysteria, peak oil doom, overpopulation doom etc.