Falling oil prices are bad for the economy - Essay Example

This includes that of United States, which is one of the major consumers of oil and oil related products (Pahl & Anne, 33). This paper argues that the low prices of oil, as they are witnessed currently, are very harmful to the economies of the world. One of the major impacts of the falling oil prices is the destruction of economies that are heavily relying on oil. Examples include the Russia, Venezuela, Iran, and even Saudi-Arabia. In a recent rating of the Venezuelan debt capability, the country was downgraded, and this is because of a drop in the oil prices, by more than 40% (Johnson, 5).

This is because the country had a very low level of international reserves and foreign exchange. Furthermore, Venezuela is also experiencing economic declines, and this is because it is unable to pay off its government workers, and offer essential services such as health care services. In fact, President Maduro was able to tour most oil producing countries, in a bid to influence them to reduce the production of oil, but he was unsuccessful. Russia is also another country that is negatively affected by a low price of oil (Johnson, 5).

Just as Venezuela, the Russian economy is dependent on oil; as a result, the value of the Russian currency has depreciated. Just as Venezuela, the Russian bonds are trading at a very low price, and this means that the two countries are experiencing a recession. In a recent credit rating of Russia, the rates of defaults were very high, and this means that trading in Russian bonds or debts was very risky. This is an indication that the Russian economy is experiencing a recession, mostly because of oil, and partly because of the economic sanctions that the European Union has placed on Russia.

Pahl & Anne (44) explains that cheap oil are not only hurting the economies of states that are relying on the production and exportation of