Oil prices have dropped by almost 50 percent this year to $60 a barrel.
Falling prices of anything should be good news. But the price collapse has sent the world’s markets into turmoil.
Countries that rely on oil exports are in trouble, while countries that import oil are making savings.
For example, Venezuela loses $700 million for every $1 drop in the price of a barrel of oil. Oil makes up 96 percent of the country’s revenue.
Russia, where as much as 75 percent of exports depend on oil, is also reeling from the impact of the price drop.
The value of the rouble has collapsed and interest rates have been hiked up from 10.5 percent to 17 percent.
Political and economic crises are feeding into each other and deepening problems for president Vladimir Putin and the Russian ruling class.
The oil price drop is rooted in higher levels of production and shrinking demand.
When the price of oil rises, more resources are put into production so firms can cash in.
That’s the case even when the cost of exploration and extraction are high, and production difficult.
The oil crisis is a symptom of the chaos of capitalism that revolutionaries Karl Marx and Frederick Engels described in the Communist Manifesto.
They wrote, “In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity—the epidemic of over-production.”
Capitalism has unleashed huge productive capacity, but the way the system is organised means this can become a problem.
People across the world need energy. But under capitalism production is based on profit, not need.
So some oil producers are hoarding oil until the price goes up again.
The US now meets between 70 and 90 percent of its own fuel needs. This has partly fed the oil glut.
Much production is through fracking, a process that is costly and only profitable when the oil price is high.
New contracts for fracking projects in the US have halved in the last month.
Fracking compares to relatively cheap production from the vast oil fields of Saudi Arabia, the world’s largest oil exporter.
Saudi Arabia has huge cash reserves.
It seems prepared to ride out the price slump and will be happy if other countries’ oil production projects go to the wall.
Oil prices have such a global impact because it is a vital fuel for all capitalist economies.
But it’s also poison for the planet, and should be replaced with renewable energy.
A chaotic system driven by profit will never meet the needs of ordinary people.