0 votes

Oil and Politics

Interesting post from Don Rasmussen at C4L. What do all think?

"There has been so much attention on credit markets and stocks that the plunging price of oil has been under-reported. The fact that oil has gone from a high of $143 to a low of $78 as of this writing represents key shifts in the calculus and realities of OPN's (oil producing nations). Many OPN's have been drunk on oil revenues much the way the US has been drunk on credit.

This wouldn't be a problem as they could shift down on spending to reflect the new price, but they are not dependent on current revenues to pay for current expenditures. Instead, they are heavily leveraged borrowers who have collateralized future oil revenues in the form of high-interest loans. This is particularly acute in the "Bolivarian" republics: Venezuela, Bolivia, and Ecuador. All have been borrowing heavily against future earnings to finance socialist domestic programs and nationalized industries. The sudden drop in price means that the chance that they will be unable to service the debt on that borrowing is only going to grow.

The potential outcome is a massive printing of money/issuing of government credit which will lead to inflation and political instability. Keep a very close eye on oil prices and how OPN’s respond. We all have a lot riding on it."

Trending on the Web