Dying Oil Prices – Who are the winners and losers?

Global oil prices have fallen sharply over the past eight months, leading to significant revenue shortfalls in many oil exporting nations, while consumers in many importing countries are likely to have to pay less to heat their homes, drive their cars or run their energy houses.

From 2010 until mid-2014, global oil prices had been fairly stable, at around $110 a barrel. But since June prices have more than halved. Brent crude oil has now dipped below $50 a barrel for the first time since May 2009 and US crude is down to below $48 a barrel.

The reasons for the decline – China slowing down coupled with US surging production & shale gas revolution, OPEC’s determination to not to cut production and Iran edging towards entering global trade, black market sales from Iraq & Syria which means additional supplies.

So who are the WINNERS?

Mainly those countries that need to import oil. Within Asia, China, India, South Korea, Japan and Thailand have been the gainers. The benefits, cutting them short, lower inflation, lower business costs, improved purchasing power, correction of balance of payment and cut in interest rates!

Cheaper oil translates into lower inflation. Oil is used as a raw material in various industries such as petrochemicals, fertilizers and etc. As oil prices decline, the logistics become more economical and hence consumers will have to pay less. This will also make these products more internationally competitive. However, most of the agro economies in Asia continue to rely on imports of both petrochemicals and fertilizers due to increasing demands, unusual weather patterns and logistic issues due to poor infrastructure.

Both India and Indonesia have taken the opportunity to cut energy subsidies and raise taxes on energy. India imports 75% of its oil, and analysts say falling oil prices will ease its current account deficit. At the same time, the cost of India's fuel subsidies could fall by $2.5bn this year - assuming oil prices stay low.

Consumer inflation has hit a 5-year low in China. However, lower oil prices won't fully offset the far wider effects of a slowing economy.

Who has lost and why?

Most of the big oil producers like Malaysia and western Asian countries. For Malaysia energy exports account for 20% of the national economy, so cheaper oil is a problem.

Saudi Arabia, the world largest and the most influential oil exporter, needs oil prices around $85 in the long run, but seems less interested to cut down supplies in order to pressurize the US shale gas industry and it can afford to continue this way for long as the country sits on a reserve fund close to $700 billion. Gulf producers such as the United Arab Emirates and Kuwait have also amassed a considerable foreign currency reserve, which means that they could run deficits for several years if necessary.

Europe is an interesting case here. A lot of analysts believe that Europe in general will benefit from the collapse in oil prices but its exposure to Russia jeopardizes the benefit realization. A recession in Russia and depreciation of the Russian Ruble will reduce investments in Moldova, Armenia, Belarus and all those European states which are vulnerable to dislocations in the Russian labor market because of the reliance on remittances from Russia.  Plus most of these countries import oil to process into other products such as petrochemicals and fertilizers, for which oil accounts for major portion of the cost. A decline in oil prices means fall in prices of these commodities too.