Forget Opec. If cartels can’t control output, they can’t control prices and in due course they fall apart, usually with a great deal of ill will in the process. The evidence of the last six months is that Opec can’t control the market — ask yourself how many Opec members want to see a price of $60 a barrel for their oil. Some in Saudi Arabia think a low price can squeeze out competing suppliers, but that feels like a justification after the fact of a fall which they can’t control. The question now is how the process of adjustment to the new price level will work.
The first and obvious point is that adjustment will be extremely painful for those who had relied on a politically determined price of $100 or more. As the FT laid outlast week, 2015 will be no fun for Venezuela, Algeria or, of course, Russia. Russia has become the first clear victim — the equivalent in the current crisis to Lehman Brothers in 2008 — a would-be superpower brought to its knees by forces largely beyond its control (although the analogy is imprecise because Lehman didn’t have nuclear weapons).
The stage is strewn with broken budgets and degraded reputations. It would be cruel to name the banks and consulting firms that started the year predicting $150 oil prices or the companies whose downside plans were based on prices which “couldn’t” fall below $100.