Andres Oppenheimer: Biggest news for Latin America: low oil prices
BY ANDRES OPPENHEIMER AOPPENHEIMER@MIAMIHERALD.COM
12/27/2014 7:00 AM 12/26/2014 7:07 PM
While other issues dominated the headlines, the most important news for
Latin America in 2014 — and the one that will have the biggest impact in
the near future — was the dramatic collapse of world oil prices.
Granted, other news such as President Barack Obama's recent announcement
that the United States will normalize relations with Cuba and the
reelection of Brazilian President Dilma Rousseff will no doubt have an
impact. But nothing is likely to change the region's political map like
the decline in world oil prices, which have plummeted nearly 50 percent
since June to the current level of about $55 a barrel.
According to a new International Monetary Fund study released last week,
it's a trend that is likely to stay with us in coming years.
The study, by IMF economists Rabah Arezki and Olivier Blanchard, notes
that the oil futures market suggests that prices will rebound slightly
to about $73 a barrel by 2019, but that they will remain depressed
compared to their levels of recent years. Oil prices hit a record of
$145 a barrel in 2008.
The main reasons behind the decline in oil prices are the energy
revolution going on in the United States, which has dramatically
increased oil production thanks to a new technology known as "fracking,"
and a decline in the demand of oil because of the recent world economic
Oil importing countries will be the big winners, and oil exporters such
as Russia, Venezuela and Ecuador the big losers. But, world-wide, the
international economy will be better off, with an increase of between
0.3 and 0.7 percent in the world's gross domestic product in 2015, the
IMF paper says.
In Latin America, by far the most hard-hit country will be Venezuela,
which relies on oil for 95 percent of its total exports.
Since the 1999 Socialist revolution of late President Hugo Chávez,
Venezuela has virtually decimated its private sector, and has become
more oil dependent than ever.
At the same time, Venezuela has failed to invest in new oil-refineries,
and its oil production is falling rapidly.
With inflation in Venezuela estimated at an annual rate of 70 percent
and its economy shrinking by 3 percent this year, most economists agree
that unless the country makes a political U-turn and adopts
pro-investment policies, it will be lucky if it can avoid
hyper-inflation over the next few years.
The new energy landscape has suddenly turned Venezuela from a major
regional player — which bankrolled more than a dozen Latin American and
Caribbean nations in exchange for their political loyalty — into an
increasingly weaker political actor.
Venezuela's clout in the region has been directly proportional to world
oil prices: when oil prices were on their way to an all-time record in
the mid-2000's, Chávez was campaigning to become a Third World leader.
Now, Venezuela cannot even keep its closest ally, Cuba, from seeking
economic relief from the United States.
Brazil, Mexico and Argentina are also likely to suffer somewhat from the
decline in oil prices, but nowhere nearly as much as Venezuela or Ecuador.
With depressed oil prices, Brazil and Argentina will have a harder time
attracting investments for their recently discovered massive oil
reserves. And Mexico may see fewer investments than it expected after
its major energy reform this year, economists say.
But other factors will make up for these potential losses, such as
bigger purchases from China and the United States, two major oil
importers that are benefiting from declining oil prices.
My opinion: Granted, the U.S.-Cuba thaw and Rousseff's reelection will
have a political impact across the region, but perhaps not as much as
their respective headlines may have suggested.
Obama's normalization deal with Cuba is likely to be watered down by the
Republican-controlled Congress, and by Cuba's regime, which needs a
foreign enemy to justify its repression of fundamental freedoms at home.
Brazil's president, in turn, will take office Thursday as one of the
weakest Brazilian leaders in recent history. Not only did nearly 50
percent of Brazilians vote against her, but she will have significant
opposition in Brazil's Congress, and — perhaps more important — faces
growing revelations of government corruption in the Petrobras oil company.
But none of these headlines will affect the region as much as the sharp
decline in oil prices. Latin America's petro-populist countries have
suddenly become weak, and the ones with economically responsible
governments will become increasingly assertive in the regional scene.
Things are changing.
Happy New Year!
Source: Andres Oppenheimer: Biggest news for Latin America: low oil
prices | The Miami Herald -