Consumers can now celebrate recent developments that portend a prolonged period of low oil prices. Thanks to improvements in drilling techniques such as hydraulic fracturing, or “fracking,” American gas companies are giving traditional oil powers such as Saudi Arabia a run for their money.
Reports indicate that even after the Saudis’ decision to flood international markets with oil, American companies have not relented and have continued to ramp up their operations. Despite low prices, they have found ways to operate at a profit under these conditions, thanks to innovative drilling techniques and other cost-cutting strategies.
What can be taken away from these developments?
Consumers ultimately win out under a low-price environment. Lower oil prices are not only reflected in lower prices at the pump, but in lower input costs for countless small and medium-sized businesses across the nation. Many of these businesses use materials that are derived from petroleum-based products. Naturally, when oil prices fall many of these businesses can save money and potentially expand their operations, thanks to the decrease in operation costs.
Low oil prices should also be welcomed by those who value international freedom, given the authoritarian tendencies of many oil-producing countries. Most oil-exporters, especially those that belong to the Organization of the Petroleum Exporting Countries (OPEC), are characterized by authoritarian governments. Many of these countries, most notably Saudi Arabia and Venezuela, are notorious for using oil money to meddle in politics abroad.
This is a natural result of governments that are the sole owner of their key resources and use oil revenue to effectively bribe their citizenry with a wide array of social programs and other handouts. Through the control of their economies’ commanding heights, these governments can cement their power and act without any form of accountability.
However, once oil money starts to run dry, these countries will become more economically constrained and will ultimately need to tax and care about what their citizens think.
Thanks to innovation in fracking, the United States can now compete on a global level with traditional petroleum-exporting powerhouses. This is another case study on how the power of markets, not the machinations of political entities, can make average consumers better off. No matter how hard they try, cartels like OPEC cannot play god. The free market will ultimately find a way to provide goods and services for people.
In the end, consumers are the real winners, and authoritarian governments, dependent on petroleum rents, are then forced to reform and become accountable to their citizens.
Image: David Prasad.