Oil Shock is Changing the Energy - and Geopolitical - Landscape

by Chris Miller, for South China Morning Post

Oil shocks four decades ago transformed the world economy and geopolitical landscape, and the latest oil crisis threatens to do the same. While oil-consuming nations celebrate, the exporting nations anticipate unprecedented economic and political challenges. Most countries are importers, so they will benefit from lower prices.

Lower prices improve economic prospects by way of two main mechanisms. The first is through better public finances. In many developing countries, governments sell fuel for cars far below the market price. But subsidies discourage fuel efficiency, exacerbating global warming. And they impose a dangerous burden on public finances; governments are on the hook when oil prices increase.

Some developing countries have taken advantage of lower prices to cut or eliminate the subsidies. Indonesian President Joko Widodo, for example, is developing a plan to redirect public spending to more productive uses, such as infrastructure or education.

chris miller