[lbo-talk] Michael Roberts on the collapse in oil prices

[Marv Gandall]

Good summary by the British Marxist economist Michael Roberts of the various factors contributing to the oil price plunge. On the economic side, a supply glut and falling demand. On the political side, a concerted effort by the Saudis and the other Arabian Gulf states to eliminate rising competition from US shale oil producers. Though the weakest US producers may be driven under, the larger objectives of US foreign policy are served by the impact of falling prices on major oil exporters Iran, Venezuela, and Russia. 

Russia, in particular, has been badly hit. The economy is contracting, the steady rise in living standards is coming to a halt, and an austerity program of wage and benefit cuts is looming on the horizon. Putin has been popular because his Ukrainian policy appeals to Russian nationalism, but Roberts contends that the use of the oil price weapon by US and its allies and the resulting domestic economic crisis will undermine Putin once its full effect is felt. 

According to Roberts, however, “the most important aspect of the collapse in the oil price is the spectre of global deflation”. Though most mainstream economists think lower oil prices will stimulate consumer demand and economic growth, this is likely to be offset, in his view, by falling profitability, the widespread failure of the most indebted firms, and the global spread of the economic crisis now brewing in Russia - “this time based in the non-financial productive sector of capitalism.”

http://thenextrecession.wordpress.com/2014/12/08/oil-the-rouble-and-the-spectre-of-deflation/