Oil is now at $37 a barrel. There is speculation that it could fall even further. No expert can honestly see an end to cheap oil. And to make matters worse, Iranian oil is soon to go online, thanks to the deal it struck with Obama. This addition is expected to exert more downward pressure on global oil prices because the size of Iran's supply is such that it can still make big profits in a $20-barrel market. (Iran can produce oil at $10 a barrel.)
Saudia Arabia now has a huge budget deficit ($100 billion in 2015) and is turning to austerity policies. This is a politically dangerous move, as the country protected itself from the Arab spring precisely by pouring buckets of money on its huge youth unemployment problem. Nevertheless, Saudia Arabia is not changing course. It wants to continue pumping lots of oil into the oversupplied market. Many see this as a strategy to cripple the recent rise of shale oil production in the US. But I think it is much more devilish than that.
The future of this form of energy is very uncertain. Battery technology is making big improvements, cities are becoming less car-centric and more multi-modal, and the world has just had a climate conference in Paris that did not end nearly as badly as the one it had six years ago in Copenhagen. The mood of the world is not changing fast enough, true; but it is changing. And so, if you are a major oil producer, it makes sense to sell your prime commodity in a world that you know for sure is built to need it, to use it. The world ahead does not hold such promises. Sell all you can in the here and now.
Alaska entered the oil market in a big way in 1977, and by the 1980s, its economy was doing so well, it confidently ended income tax and instead sent royalty checks to it citizens for just being its citizens. This petrol socialism proved to be a perfect climate for Republican politicians. The state gave us Sarah Palin, a former governor who in 2008 ran for the second-highest office in the country without a single good idea in her head. But it made sense that such a politician would came from Alaska, because its governors didn't need good ideas. Like the kings of Saudi Arabia, they only needed to sign checks from oil revenue.
All of this looks like it's coming to an end. Low oil prices are hurting the state's budget, which faces a $3.5 billion deficit in 2016, and the current governor, an independent, wants not only to make deep cuts in the royalty checks but also reintroduce income tax. Unless Alaskans can put in power a Republican who is as indifferent to balanced budgets as Ronald Reagan was indifferent to government spending, America's grand experiment with petrol socialism might have entered its twilight.
