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Seven unexpected consequences of falling oil prices

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Seven unexpected consequences of falling oil prices


The dramatic worldwide fall in oil prices is having an impact on economies around the world. Last year crude prices fell by close to 50 per cent and this year alone they have dropped a further eight per cent.

There is no doubt the cost of transport is cheaper, which is obviously good news at the pump, and what we pay for buses, taxis, planes and other public transport should fall. How fast and by how much are the big questions, though, and it depends how individual governments apply energy taxes.

It takes time for price cuts to be felt by ordinary people, but here is a list of seven other unexpected consequences of falling oil prices:

1. Boosted consumer spending The less we spend on transport the more we have in our pockets for buying other things, which should boost consumer spending and strengthen economies. It is also cheaper to transport goods, so theoretically that should be reflected in lower prices, also giving people more money in their pocket.

2. Extra cash in some developing countries Countries that import oil will see direct economic benefits in terms of their balance of payments. Nations such as India, which imports more than 75 per cent of its oil, will pay much less and the government will be able to slash its deficit.

3. Welfare cuts in some states? Big oil exporting countries, such as Russia and Venezuela, rely on what they earn from oil to prop up their social welfare systems. There is concern that healthcare, education and social assistance could be affected.

4. Layoffs in the energy sector Anyone working in the oil sector, or for support companies, will be nervous. Falling crude prices means operations are making less money and companies will want to trim costs. This year is expected to see massive redundancy plans.

5. Less investment in clean energy As oil prices drop, many people see less of a need to seek alternative energy sources. We could see less investment in visionary projects that do not involve oil but instead use wind, solar and electric power.

6. More traffic on the roads Cheaper prices mean that people are more inclined to fill up and take to the road more often, meaning more congestion and of course more pollution. There is also the likelihood of more traffic accidents and hospitalisations.

7. A change in geopolitics As the price of crude oil falls, countries that were once enormously influential because of their oil wealth may find themselves having to reassess their foreign relations. Nations dependent on oil-rich states could now have more bargaining power.

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