Without a doubt all South Africa would concur that it is a positive development. They would immediately point to the price of petrol and, if they were more astute, they might allude to the fact that Eskom is spending R4 Billion per month on diesel to power their “emergency” open cycle gas turbines. On the other hand is this positive affirmation universally true?

Firstly what is driving the price of this finite product down? From a South African perspective portion of the cause is highly illustrative as it is a contentious oil extraction process which is currently under debate.

Main picture: The Saudis have the lowest cost per barrel of oil in the world. Their aim is to destroy the expensive producers such as the offshore oil production and especially the fracking industry in the USA.

The proximate cause is American oil self-sufficiency driven by the “demon methodology” hydraulic fracturing of shale rock. The epicentre of its use is Texas but locations such as North Dakota will in future years become the mainstay of this industry. With reduced American demand have come diminished imports of oil.

In all previous downturns in demand, OPEC, led by Saudi Arabia, has led the charge to taper supply. By being the swing producer, prices from a monopoly OPEC perspective were within a “narrow” band sufficient to fund their members’ budgets. Apart from Saudi Arabia, there are a number of other countries many in the Middle East which are heavily reliant on oil exports to balance their budgets but on this occasion they have been joined by Venezuela and Russia both of which erroneously based their budget on an oil price amounting to $120 a barrel.

The Saudi Arabian bete noir – fracking which has reduced American dependence on imported oil

The previous President of Venezuela, Hugo Chavez, attempted to create a Socialist idyll on the back of steeply rising oil prices. Hugely expensive and totally unsustainable social programs were implemented in his attempt to defeat the forces of economics and capitalism.

This sudden reversal of fortunes has resulted in wide-spread social unrest due to economic dislocation. The President Nicolas Maduro has today [Tuesday 2^nd February 2015] levelled unsubstantiated charges that the USA in the form of the vice-President Joe Biden is “behind an attempted coup in Venezuela.”

That is how serious the widespread protests were taken in Venezuela. The USA has been made the scapegoat for tumbling oil prices.

For Venezuela, this is disastrous; a tragedy waiting to unfold. It is just a pity that the architect of such calamitous economic policies was not alive to witness the result of his inanity.

Riots in Venezuela

Russia is facing a similar predicament. With the Rouble falling by over a third against the USD, the stock market has crashed.

For Russia & Putin this is a crisis but for the Ukrainians battling Russian backed rebels this is heaven-sent. Of course this situation could rebound on the Ukraine if Putin attempts to deflect internal attention from the crisis by intervening even more in this country.

From the West’s perspective the impact on Iran would be positive. They might be pressurised to capitulate on their nuclear ambitions in lieu of the easing of debilitating sanctions.

Iraq is facing a mounting threat by the ISIS fundamentalist insurgents. Overcoming them will require oil revenues preferably with a high selling price. From a Western viewpoint as regards Iraq, a high oil price is desirable.

ISIS committing murder. Iraq lacks cash to fund its fight against ISIS due to falling oil prices

Then one comes to Saudi Arabia, the ultimate cause of the low oil prices. With the additional American oil available, Saudi Arabia finds itself impotent in the face of reduced demand. With increased supply derived from high cost sources such as fracking, the Saudis have adopted an uncompromising stance. With oil-from-shale costing $70 per barrel to produce, a lower world oil price of $10 to $20 per barrel would mothball and shutter that industry.

It is a high stakes winner-takes-all strategy of the Saudis. By all accounts, retrenchments and expenditure curtailments are the order of the day in Texas.

Traditional oil production methods employed in Texas

Like all strategies, there are possible counter-measures. If anything now is the time for the American government to set the local oil price at $70 per barrel. More importantly perhaps, the Americans could ban the import of crude oil & its refined by-products. Without having to manipulate the price it would rise to $70 per barrel.

The Saudis would have been beaten at the own game.

The negative implications for the Saudis are more pervasive. Apart from finally losing their ability to manipulate the oil price and thereby declawing OPEC, the Saudis huge program of funding the construction of mosques and madrassas throughout the world will be curtailed.

Moreover the whole gamut of geopolitical clout that the Middle East wields in the world is a function of its oil revenues. If its oil reserves were miraculously to vanish overnight that importance in the world would cease to exist. In order to ensure a steady supply of oil in the past, the USA has suborned its cherished principles and kow-towed to autocratic inhumane regimes.

Saudi Arabia is the larger donor to fund the construction of mosues world-wide. Any long term dip in oil revenues will result in a reduced spending program

Lastly I am of the belief that so precious a resource such as oil should not be squandered on burning to produce electricity. Instead it should be conserved for use in the chemicals industry over the next few millennia.

For it to be reserved exclusively and solely for that use, would require an oil price quintuple or even sextuple that of its current price.

Herein lies the irony of all pricing. What is good for the goose is a disaster for the gander. Fortunately in this case it is Good Guys 10, Bad Guys 0.

Such is the current conundrum with the current low oil price or even for that matter, a stronger or weaker currency.

Winners and losers abound at every price point.