The massive drop in oil prices has been rather welcome for us lot in the West hasn’t it. The price of everyday goods has dropped. The weekly shop costs you less, so does filling up the car at the petrol station. It’s taken off some of the financial pressure and given us a few quid extra to spend. The price of oil has now seemed to have settled around the $60 mark. It’s not been that low for years. However, whilst it’s great for us, there are some serious problems developing in the countries where oil is the backbone of their economies.

Potential for trouble in OPEC countries

Algeria

Angola

Ecuador

Iran

Iraq

Kuwait

Libya

Nigeria

Qatar

Saudi Arabia

United Arab Emirates

Venezuela

These are the 12 members of OPEC, the major nations producing oil in the world right now. OPEC is seen as the main world body which controls oil output and influences prices. At an earlier meeting in late November, the group could have chosen to reduce output to stabilise the price. However regional politics got in the way and Saudi Arabia put their foot down and said output would stay at current levels – so that was that.

But I think worse problems are to come. I was sent a link via Twitter from @lee_upvc_repair to a Reuters news report about fierce fighting in OPEC nation Libya which destroyed two days worth of oil, amounting to 800,000 barrels of oil. This isn’t a one-off incident in the country. I’ll talk more about that in a moment.

Source: Deutsche Bank & IMF via BBC

On the left is a chart which shows how much oil prices need to be for each of the OPEC countries to be able to balance their budgets. As you can see, by far the worst off country is Libya. At $184 per barrel, they are absolutely nowhere near a sustainable price. Each time oil is bought, they are losing money, in rather large amounts. That chart is when oil was at $77.7 per barrel. At the time of writing it has lost another $20 since.

Lets go back to Libya. They were one of the countries involved in the Arab Spring. The population took up arms, protested and eventually forcing Colonel Gaddafi out of office – to then be shot dead. NATO and the West supported the rebels in overthrowing the dictator. But after the upheaval, we left them alone to try and establish democracy alone. It looked to be going well in the beginning, but soon unraveled as a power vacuum formed. The West has done little since to help the country.

While oil remains this low, OPEC countries are going to suffer, especially the Middle Eastern countries. With the area much more unstable than it was a decade ago, and jihadists seemingly able to cross borders into many countries, I fear there is a growing risk of further local and regional wars, with fighting to gain control of various oil resources.

It is quite possible that certain factions who could claim to run the country and it’s oil resources better, in a country like Libya, could wage war completely in an effort to gain control of the country and it’s natural resources. While the price remain this low, those countries will suffer, and so will it’s people. That’s not a situation that is going to breed calm and prosperity.

It might sound dramatic, but there is a real possibility that it could happen. Whilst Middle East OPEC countries have their economies ruined, and the rise of militant groups like IS destabilise nations, there is a real chance a very depressing scenario could play out in front of our eyes sooner than you think.