- Norway: lots of natural resources, low population, spends only part of oil money (in fact, Norway makes more money per year from the oil fund (i.e., money saved from past oil sales ) than it does from actual oil sales.
- Saudi Arabia: lots of headway to cut spending; standard of living is already very high, with huge reserves to soften the impact of short-term price volatility.
- US: has imported oil for decades until there were enough combined geopolitical and economic incentives to start using its own; exports < 10% of all exports.
- Russia: > 50% of exports are oil; heavily cash-strapped already, so all decreases in oil revenues are directly painful; few options to diversify; too small to be a market maker. Oil money is a direct driver of improving economic circumstances, which in turn provide for much of the countries relative stability.
Norwegian here. The entirety of the earnings from the oil industry is funneled into our Sovereign Wealth Fund, and has been for decades. A few percent (4% ?) of this fund is spent each year by the state. So we are not as hard hit as the others, and the state can basically keep spening money at our present level for many years. Note that oil companies in Norway is scaling back, so our jobless rate and tax income is being hurt, but so far things are only getting interesting for those laid off and those directly in the oil business.
On top of the dwindeling reserve, Russia has been given some stiff fines from international courts for unlawful actions, for example $50bn to Yukos shareholders.
Edit: there certainly are also nations that are in at least as deep problems as Russia, Venezuela for example.
Saudi can just borrow money to help ride things out, their debt-to-GDP is incredibly low (like 3%). That got up to 100% in the early 90s, IIRC, when government revenues had been hurt by a protracted period of lower oil prices.
Saudis have huge cash reserves and can survive on a much lower oil price for longer. The US is already shutting down rigs and other production to get costs in line. As a country the US doesn't require oil exports to stay afloat. In fact, from a strategic standpoint the US prefers to import other countries oil and stock pile its own.
It certainly applies to Norway, Canada, Australia (commodities) and Saudi Arabia as well, among others.
It doesn't apply much to the US. Among the major oil producers, the US is by far the least dependent on the oil market for the domestic economy's well being. It's arguable the US benefits more from cheap oil (industry, consumers, gasoline), than it takes a hit due to the loss of oil jobs and growth in the oil field in general. $40 to $50 oil has slowed oil well expansion and exploration, but US oil production is still sitting near all-time highs, and that will continue so long as oil doesn't go to eg $25-$30 or so for an extended period of time. At a range of $40-$50 for 2016, current projections are that US oil production will expand by another 500,000 barrels per day.
The dollar turning, which has crushed commodities, has pushed Canada into a serious recession, and is threatening to push Australia into one. To make matters worse, China's growth has been trending down for ten years - they temporarily spiked it back up after the great recession at the cost of tens of trillions in debt. China's economy tanking, is hitting any commodity dependent economies very hard.
In Norway's case, they get to start from an amazing position of strength overall. They have extremely low unemployment and a very high standard of living. They have the sovereign wealth fund to lean on if times get really bad. It's very likely that five years of cheap oil will hit Norway very, very hard. They're already facing a scenario where they'll have to tap the sovereign fund to deal with their budget demands. That's not going to get any prettier any time soon. The party is over, but Norway has a lot of wealth accumulated from it, and can weather this storm better than most.
Saudi Arabia has $640+ billion in foreign reserves that they're depleting by the month. It'll get worse over the next year, but they can weather it for a few years yet without a threat to their stability or economic well-being. Saudi is of course also among the low cost leaders on production, so while their budget demands $100 oil, on the other side they have among the best margins on what they are producing.
Out of the group, Russia is drastically worse off. Not only have they been trying to significantly increase military spending at exactly the wrong time, not only are they under international sanctions, but they're starting from a position of national weakness compared to eg Norway: their people are not well off, their Ruble is being hammered, and they're run by a dictator that is not good at managing the economy (as witnessed by their complete non-diversification the past decade plus, which has left them vulnerable to this outcome in the commodity market).
I almost entirely agree with you, just wanted to add a bit more colour to your comments on Canada and Saudi Arabia.
Canada is clearly in recession but I don't think we can call it a "serious" recession yet. So far more of a mild contraction (but pretty terrible if you focus in on energy). I do think the rest of the economy is lagging behind energy and bad times are ahead overall, especially with so much of Canadian growth/prosperity tied to the housing boom. I'm probably preaching to the choir here, but seriously: when the prime minister promises a home renovation tax credit during his reelection campaign - and explicitly states he's doing to help boost the value of Canadians' homes - you've gotta know people are captured by the real estate boom narrative.
On Saudi, they can afford low oil prices for a while and can just borrow if they need to. Super low debt around 3% of GDP, low cost basis as you say, and they've done this before and come back from it (100% debt-to-GDP in the 90s o the back of low oil prices). I've seen interesting speculation that Saudi is willing to hurt a bit from cheap oil because it'll hurt an increasingly-economically-integrated Iran more.
I agree with alot of what you have said. However, here is what I am trying to understand. Who will buy US treasuries, when all its major buyers are getting in serious trouble? How will US government fund itself?
Russia walks the thin line - large population, huge social spendings, military spendings also, restrictions on borrowing cheap capital. Might be first to fall.
Makes me really want to move my savings (which are already in dollar mostly) out of Russian banks, but I'm not entirely sure where to. Or just burn those on something?
If I were you I would def move it - can you get to london and setup an account there? Just look at Argentina - when they went broke they converted all foreign currency accounts to pesos (at terrible rates) - effectively stealing large amounts from the people
Huge trouble? While there is an economical slowing in the oil patch, exactly as expected, the government most recently posted a surplus.
Canada is a bit odd relative to oil given that a pretty large contingent of Canadians are really on the fence about exporting fossil fuels. Even in Alberta, the province where most of the oil action happens, the provincial government was recently taken over by a party that you could almost call anti-oil (to the limits of pragmatism).
Huge might be an exaggeration, but Canada is in a lot of trouble.
1) Six of the last seven months have seen economic contraction. There's no reason to think that's going to get better soon, given what's happening to the global economy, China and commodities. Oil has continued to get cheaper, commodities have continued to go down, and China's economy is getting sicker.
2) Canada's real estate bubble will be popped by the recession. That'll make the damage a lot worse. The constantly rising housing market was contributing temporary, artificial growth to the economy for the past decade.
This is going to be a drawn-out downturn. China is going to have an extremely difficult ten plus years due to their debt burdens, and the fact that all the easy growth ended years ago. The historic cheap dollar years from 2002-2014 are not likely to return, the high dollar will continue to put pressure on commodities, and countries dependent on commodities. Canada won't grow again unless the dollar drops, or the global economy booms, either of which would send commodities higher.
I replied to someone claiming that Canada was in "huge trouble". It isn't in huge trouble. You have provided conjecture, but the truth is that it's exactly the same conjecture we've been hearing for around 15 years. By that reasoning, Canada has always been in huge trouble.
Most commodity prices are doing superbly (oil is an outlier). Food prices are at all time highs. Canada's economy has faced far more of a disruption from normal globalization and mega companies shifting production elsewhere, than any hewer or wood miner of minerals disruption. It will always face threats and will always be adapting.
It's not the same conjecture. It's a fact that Canada is in a recession right now. Their economy is highly dependent on the price of commodities. The price of commodities is primarily determined by the dollar and demand. The dollar is high and is going to stay there. Demand is toast. It's obvious what outcome that is going to spell for Canada.
Nearly all commodities are lower than a year ago, and half of them have crashed. Oil is the opposite of an outlier.
Copper has gone from $3.30x, to $2.20x in a year. Copper is considered a critical bell-weather commodity. Demand for copper has fallen off a cliff.
Iron Ore has crashed by 60% in less than two years, and is down 40% in just one year.
Coal has dropped by over 20% in one year.
Steel prices are down 30% in one year.
Platinum has gone from $1500x to $992.
Natural gas was $4 last year this time, and it's $2.60x now.
Heating oil and gasoline have crashed with oil.
Sugar has dropped by 50% in a year, on a non-stop crash.
Lumber is down by 1/3 in a year, and has crashed.
Coffee is down by 40%.
Corn, wheat and orange juice are all down slightly versus one year ago. Rice is down about 15% vs a year ago. Soybeans are down 13%. Soybean oil is down over 20%.
I was under the impression that BC and Alberta were natural resource economies which don't deal well with a high US dollar, but Ontario actually does well with a high US dollar. Also, a high US dollar makes US out-sourcing to Canada (as well as film industry on-location shooting) a great value.
What threw Canada into a recession, is that they don't have enough other export offsets against the commodity & China weakness. They haven't managed to diversify their economy much in the last ten years. It has become an active topic of discussion since their economy began contraction, with everyone throwing around blame. So while the loonie has taken a hit [1], that isn't going to bump exports very much.
