Low oil prices have rippled through the world economy in some surprising ways…
1. Piracy in West Africa’s Gulf of Guinea
- No longer worth the risk and complexity for $30 or $40 oil, the number of oil vessel attacks are down.
2. College applications in North Dakota
- As oil operations contracted, college applications in North Dakota increased because the people who lost their jobs went back to school.
3. French Fries at KFC in Nigeria
- Less oil revenue means Nigeria has fewer U.S. dollars so KFC cannot import the potatoes it needs in Nigeria.
4. Canadian Hockey teams’ expenses
- Since the Canadian teams in the NHL pay players in U.S. dollars, their expenses increased as lower oil prices weakened the Canadian loonie.
5. Al-Jazeera America’s exit
- Financed by oil-rich (but no longer cash-rich) Qatar, the money losing U.S. subsidiary of Al-Jazeera was unsustainable.
Our Bottom Line: Externalities
When an unrelated third party bears the impact of other people’s actions, we can say that the original contract has an externality. A vaccine leads to a positive externality when the result is fewer sick people. On the other hand, second hand cigarette smoke and loud dormitory music generate negative externalities that can diminish someone’s quality of life.
With oil, a descending price is creating positive (piracy) and negative (Nigerian French Fries) externalities around the globe.
Falling from more than $100 a barrel, the current prices of WTI and Brent have been hovering close to 30: