Oil Soaked

The big mystery these days is not whether Clinton will survive impeachment hearings, but how the U.S. economy has managed to stay afloat while the rest of the world slowly sinks into a global recession. One of the reasons is that the price of oil has dropped to its lowest level since 1976. This may be great for some Americans, but it's pure hell for Third World countries that export oil.

Last week, oil prices dipped to $9 per barrel during one afternoon last week, down 40% from last year's price. Aside from pushing oil companies into bed with one another (see Nature & Politics, ETS! 12/9/98), slumping oil prices have made several oil-dependent countries scream. Russia is one familiar example; the IMF continues to hold back installments of a much-needed loan to pay the back wages of Russian workers (including miners and workers in the energy sector). Work stoppages and strikes continue, with reports of teachers dying from hunger strikes.

Venezuela is another oil-rich country in the throes of upheaval. The drop in oil prices combined with government corruption has turned a nation that was the world's largest oil exporter in the 1960s (and one of the most affluent nations in South America) into a country with over 80% of its population living in poverty today. Debt consumes about 40% of the government's budget.

Last week, Venezuelans voted in a new president, Hugo Chavez, who's widely described as a "dictator-in-waiting" who wants to rewrite the country's constitution. No sooner was he elected than Chavez announced that he would boost the state oil company's production quotas to make up for the drop in oil prices. But this production increase will only make matters worse: oil prices are low because of an oil glut and low demand. Increasing the glut will only make things worse. Yet Venezuela needs the steady influx of hard currency to pay the interest on its massive government debt; and oil makes up the bulk of its exports. This vicious cycle is common to most countries that rely heavily on commodity exports (foodstuffs, minerals, natural gas, coal, etc.).

Ecuador, Venezuela's neighbor, has been pummeled by low oil prices and the ravages of El Nino-related storms. Oil income accounts for 40% of the government's budget. The severe drop in price means it will take in $500 million less in revenue this year. Storms have also caused about $2.6 billion in damages throughout the country. The combination of these two factors has made Ecuador's government deficit bloat to an incredible 7% of gross national product this year. Two weeks ago, Ecuador declared an economic state of emergency so it could tap into $311 million from the Latin American Reserves Fund. This new loan won't bring relief for Ecuador's population, however; it will all go to cover interest payments on its debt. Which, of course, sounds a lot like the economic disaster that unfolded in southeast Asia last year.

Brazil is in the middle of its own crisis. It's actually importing oil, because its government-owned company can't produce enough oil for domestic use. A lot of Brazil's oil reserves are directly tapped by private, multinational corporations that pay a minimum of taxes and royalty fees to extract, refine, and sell Brazil's oil and pocket most of the profit themselves (privatization in action!). Having just negotiated a new $41.5 billion loan from the IMF and with a debt burden equal to 7% of its gross national product, Brazil can't afford to be spending hard currency to buy imported gasoline, so it will also increase the oil output of its state-owned company by 1.2 million barrels next year, thereby further contributing to the world-wide glut.

Nigeria has also suffered because of falling oil prices; about 90% of Nigeria's export income is from oil. Last year the government brought in a total of $12 billion (much of it stolen out of the treasury by former dictator Sani Abacha and his cronies), but this year is set to make only $7 billion--and a lot of that will go into fixing pipelines, refineries, and other infrastructure that grossly deteriorated under Abacha's rule. Because of breakdowns, Nigeria, the sixth largest oil producing nation in the world, can't even refine enough oil for domestic use. It, too, has to import gasoline.

Finally, the relatively-rich countries in the Middle East called a meeting of OPEC member nations last month. Several of them have their own outstanding debts left over from The Gulf War and subsequent military hardware purchases. The effort to get both OPEC nations and non-OPEC nations to cut production of oil were doomed to failure from the start. Because of privatizations pushed by the IMF and the World Bank in the 80s and 90s, few nations control the extraction of oil within their own borders anymore; large oil companies do instead: Exxon, Chevron, Unocal, Mobil, Royal Dutch Shell, Elf Aquitaine, etc. They can control the global supply. And after the Exxon/Mobil merger, this task will become a little bit easier.

Ironically, two major events caused the current worldwide oil glut in the first place: the global economic recession (which has decreased the demand for fuel, particularly in Asia) and global warming--more specifically, an unusually warm winter on the eastern seaboard of the U.S. (which is probably the world's biggest consumer of heating oil). As late as the first week in December, New York and New Jersey saw temperatures above 70 degrees Farenheit.