Low Oil Prices Accelerate Trouble For Venezuela
AUDIE CORNISH, HOST:
The drop in the price of oil might be having a positive effect on the disposable income of Americans, but for people who live in countries whose economies are dependent on the high price of oil, it's a different story. Daniel Yergin is a leading energy scholar.
Welcome to the program.
DANIEL YERGIN: Thank you.
CORNISH: You've written that this is toughest - these oil prices - on countries that have small financial reserves but high government budgets and you give the example of Venezuela. What's happening there?
YERGIN: Venezuela depends upon oil revenues for up to 65 percent of its spending. Meanwhile, its economy is basically in chaos. It's been grossly mismanaged. There's social unrest, there's rampant inflation, and they have depended upon a much higher oil price than you're looking at right now so this really adds to their problems.
CORNISH: But politically-secure countries generally do better, right, at managing their oil wealth? Wouldn't a country like Venezuela maybe already be in trouble?
YERGIN: Yeah. Venezuela's already been in trouble for a number of years, but this really accelerates the trouble and the reason that they were the loudest country at the OPEC meeting is because their economic situation is really quite precarious.
CORNISH: You know, we have seen oil prices fall before, you've written as much. I mean, how did these economies fare then? I mean, what lessons were taken away?
YERGIN: When the big fall in oil prices occurred in 1986 and then again in 1998, that threw the economy of the oil exporters into a tailspin. Some of them have learned lessons and one thing Vladimir Putin's Russia has done is built up foreign exchange as an insulation blanket against falling oil prices, but they're already starting to cut into that. But for the other countries, whether you're talking Venezuela, whether you're talking about Iran, whether you're talking about a country like Nigeria, this is an oil shock and it's a very serious one.
CORNISH: We spoke earlier about how low oil prices could affect Americans, but when you're looking at these countries is there a thread that they have in common that can help us understand how low oil prices can affect their citizens?
YERGIN: Yes. I mean, countries like Venezuela and Iran depend upon high oil prices in order to basically maintain social order, to provide employment, to deliver services and so once they don't have the money, and if they don't have the resources to draw upon then you see a situation in which the really unrest and turmoil mounts in the countries. This is not just an economic issue, this is an issue of social stability because it means declines in transfer payments to people, it means declines in people's income and that's what becomes a basis of protest and hostility to the governing regime.
CORNISH: Daniel Yergin. He's the author of "The Quest: Energy, Security, And The Remaking Of The Modern World."
Thank you so much for speaking with us.
YERGIN: Thank you.
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