Around the Institute

Is the Global Drop in Oil Prices a Good Thing?

April 1, 2015

The sharp fall in global oil prices over the last few months has led to significant revenue shortfalls in energy-exporting nations, while consumers in many importing countries are paying less to heat their homes and drive their cars.

We asked three Aspen Global Leadership Network Fellows working in the energy and business fields to answer the following question: From your perspective, is the global drop in oil prices a net good or bad thing? How will it affect the world economy in the future? Their responses below draw on a range of experience, from global logistics, to the Chinese auto industry, to renewable energy in the US. 

Andy Karsner, Henry Crown Fellow, executive chairman, Manifest Energy, former US assistant secretary of energy for efficiency and renewable energy

“The present precipitous decline in global oil prices is a temporary and transient phenomenon. It is driven substantially by full-on, purposeful pumping by Saudi Arabia, which is reclaiming their market share. This is also serving to proactively sanction the Iranian and Russian economy in ways that foreign policy cannot.

While US oil rig counts continue to decline, our production efficiency is increasing and we now find ourselves simply out of storage for all the excess supply. While I expect prices to find a new sustainable equilibrium at higher price points before year-end, it’s fair to say that the lower prices have prompted tax cuts through the consumer economy and have in turn stimulated growth rates and labor markets.

Lower prices also offer greater optionality for policy makers, if they are sufficiently courageous to heed John Kennedy’s call to ‘repair the roof, while the sun is shining.’”

Joan Ren, China Fellowship Program, partner, Ample Harvest Investment Management, China

“The recent slow-down in China’s economy may have contributed to this phenomenon.

Taking the auto industry as an example, China has 264 million car owners and Chinese auto sales grew by 6.8 percent in 2014, and was the top market in the world for new car sales for the sixth straight year. Used car sales also grew by more than 16 percent. Meanwhile, Chinese growth overall came up short of forecasted growth rates of 8 to 10 percent. 

Big cities like Beijing, Shanghai, Shenzhen, and Hangzhou launched policies aimed at curbing emissions by restricting the number of vehicles on the road and increasing the cost of car ownership.

On the technology side, all levels of government are working to reduce [our] dependence on oil by providing incentives and subsidies for the development of alternative energy vehicles. Coupled with that, larger private equity funds are investing in innovative technology and breakthrough energy solutions to reduce China’s oil dependency.

Oil price is such a difficult issue and full of contradictions. Is it a factor of pure economic phenomenon, or a power play between global giants? Is it net good or bad? The key thing is to put aside the debates on geopolitics and put human sustainability back at the center of this conversation. We need to continue to develop innovative technology that decreases global dependence on fossil fuels.”

Hussein Hachem, Middle East Leadership Initiative, CEO, Aramex, United Arab Emirates

“While oil price changes have complex outcomes, the recent sharp decline could hamper growth in the Gulf Cooperation Council countries. For the time being, governments across the region have the financial reserves to maintain key infrastructure spending, but will need to adapt fast and accelerate non-oil revenue streams to further diversify their economies. Shoring up sectors that are already enjoying continued growth — such as retail and transportation — and providing investors with opportunities is the way to go. We might also see a surge in public-private partnerships to ease the pressure off of the public sector.

For the global economy, the falling prices would appear to be a welcome reprieve. For transportation operators it translates to lower operating costs and some pass-through savings to customers. Though uncertainties still prevail, the expected uptick in consumer spending should positively impact global trade.” 

Caitlin Colegrove is the network and communications manager for the Aspen Global Leadership Network.