World capitalism faces a gloomy future according to recent reports issued by the International Monetary Fund and World Bank. They warn of lower than expected growth rates, continual volatility in the Eurozone, widespread creeping deflation and economic, social and political turmoil in oil producing countries as the price of ‘black gold’ continues to plummet.
Oil price movements are a sensitive barometer of economic health and in the last six months they have fallen by almost 60%. In parallel, many commodity prices are sliding rapidly, with copper crashing to its lowest level in seven years, highly significant given its key role in telecommunications, cables and infrastructural investment.
In essence, the rout in crude oil prices and other commodities signifies fears that the slowdown in the global economy might be much deeper than thought.
The OPEC oil cartel, with Saudi Arabia at its core, once commanded more than half of world oil production. Recently however the US has tapped into vast new domestic supplies as a result of the environmentally destructive shale fracking process and this has led to production of an additional 4 million barrels of oil annually.
Though still an oil importer, the US has become the world’s biggest producer, giving it new leverage and release from its vulnerable position of having to rely upon OPEC supplies with all the attendant geo-political uncertainties.
China’s voracious appetite for raw materials has fuelled the commodities price boom over a whole period, but with growth there now sharply slowing, panic is rising among metal and mineral exporters like Australia at the prospect of falling prices and profits.
New contradictions appear every day, only worsening the economic uncertainties. US interest rates may rise later this year in order to cool the economy which has had a huge ‘tax break’ as a result of oil profits and cheaper petrol on the forecourts.
This could lead to a massive further exit from the oil market by speculators. Many speculators have bought oil for no other reason than as a vehicle to park an estimated $9 trillion dollars of savings.
Higher US interest rates make those debts more costly to service. To prevent themselves going bust, speculators will dump their oil contracts, driving down the price further.
Russia is almost wholly dependent on oil exports for trade and has suffered hugely from the drop in price. The OPEC cartel too is susceptible to this development. The Saudis are currently keeping their production at existing levels in order both to protect market share and to damage the oil profits of their traditional Iranian rivals, but this game of ‘who blinks first’ cannot last indefinitely.
Nearer home, lower energy prices are causing havoc in the UK North Sea fields, where companies such as BP have already cut 300 jobs in Aberdeen. One third of UK offshore fields are in negative cash flow.
Cheaper prices are welcomed by workers, but oil’s collapse further fuels deflationary trends, already evident in the EU. Workers will end up paying again and again as real debts rise and wages fall.
The paradoxical effects of oil’s collapse on different countries illustrates the madness of unplanned global capitalism. Only international socialism with a world socialist plan of production can harmoniously utilise the rich resources on our planet for the long-lasting benefit of humankind.