As the year 2015 dawns, the outlook for the global capitalist economy remains bleak. The US is the only major developed capitalist country to show any real signs of a ‘revival’, but even it slowed down again significantly towards the end of last year. Meanwhile, “the UK’s current-account deficit has widened to a joint peacetime record because of falls in receipts from UK investment overseas and rises in payments from the UK to foreign investors.” (‘UK current-account deficit hits joint record’ by Emily Cadman, Financial Times, 24 December 2014)
Unemployment remains high. Here again, the US appears to come off best with a ‘mere’ 5.6 percent, compared to an OECD (the Organisation of Economic Cooperation and Development grouping of mostly developed economies) average of 7.4 percent. However, in the US, as elsewhere, nearly all new jobs that are ‘created’ are low-paid and unskilled ones.
Moreover, large numbers of the unemployed are not counted as such, having given up hope of ever finding work and been promptly dropped from the ‘job seeker’ figures. An article on forbes.com has put the real US unemployment rate at 12.6 percent, and it could well be higher. (‘Tackling the real unemployment rate: 12.6 percent’ by Louis Efron, 20 August 2014)
As a Greek exit from the Eurozone becomes a serious possibility once again, German bankers are starting to fear major losses. Even if Greece does not leave the euro or default on its sovereign debt, a significant write-off of some debt seems inevitable.
But, realistically, if Greece does leave the Eurozone – and it would have to choose to do so itself as no one can legally force it – and reintroduce the drachma as its currency, a default and devaluation would be unavoidable. The country would be then left with as many new problems as it would solve, as imports would become more expensive for the sake of boosting exports.
Germany itself has been hovering on the brink of recession for a while, where it is now also joined by Austria. The spectre of deflation also looms large across the G7 economies: the Eurozone is already in it, Japan not far behind and inflation in Britain has dropped below the Bank of England’s absolute minimum target of 1 percent.
As the global rate of profit is still nowhere near enough for a ‘healthy’ capitalism, deflation gnaws further into individual rates of profit by forcing commodities to be sold under their value. Value is thus being destroyed, but nowhere near enough to restore profitability.
Everywhere we look, we see an economic system in terminal decline and creating problems it cannot possibly solve – at least not in a way anyone would like to envisage.
All this, however, does not mean that capitalist imperialism will come crashing down by itself tomorrow. All the reserves it has amassed will not go away overnight, and neither will its state apparatuses, armies and infrastructure simply disintegrate. The crisis should, however, provide genuinely progressive forces with a little more room for manoeuvre in the struggle to give humanity a future.
The importance of oil
Now, many countries, especially those that are net importers of oil (or energy in general), have been handed a short-term lifeline by the price of crude oil falling from around $110 per barrel in July 2014 to $48 this January. Incidentally, the price of natural gas has also fallen from $4 to $3 per million BTU (a thermal unit based on the heat required to raise the temperature of one pound of water by one degree fahrenheit) within the last month.
Of course, fossil fuels, above all oil, are what make our global capitalist wonderland move. According to BP’s ‘Statistical review of world energy 2014’, “oil remains the world’s dominant fuel”, despite losing market share for 14 consecutive years.
Apart from powering everything from cars and public transport to commercial goods transport by sea and road, it also plays an important role in large-scale agriculture; not just powering the machinery but also by virtue of the price of nitrate fertilisers being closely linked to oil and gas prices. And, of course, oil powers the war machines by which imperialist powers exert their control over the globe – and the armies of those who resist.
Despite some important advances in renewable energy technologies, the world as it is organised at present simply cannot function without oil and gas.
The geopolitical implications of this are also important. The particular way in which capitalism has developed has led to a situation where the imperialist powers, which are the most energy-hungry, are not the ones sitting on the world’s main fossil-fuel reserves. The main reserves are found in the oppressed countries, which, as a result of their underdevelopment, are very much reliant on its export. The US is somewhere in the middle. Despite possessing significant oil and gas reserves, and despite its recent step-up in production as a result of the shale gas boom, it remains a net importer of fuel.
Invisible hand or deliberate policy?
“Observers have attributed the drop [in the price of crude oil] to both an increase in supply, resulting from the shale revolution in the United States, and a decrease in demand, owing to sluggish global growth. All eyes have been on the kingdom [of Saudi Arabia], which houses roughly 73 percent of the world’s proven oil reserves, to cut back its production and help stabilise prices. But Riyadh has refused to play ball, breaking from its traditional preference for high prices, in order to keep pumping.” (‘Riyadh’s oil play. Why the kingdom is keeping prices low’ by Bilal Y Saab and Robert A Manning, foreignaffairs.com, 6 January 2015)
We should pause for a moment to remind ourselves of what, for Marxists, should be a given: economics and politics cannot be separated, and no topic illustrates this as well at the present moment as the one dealt with here. Reminding ourselves of this, it is important to guard against conspiracy-theory thinking – to assume that everything that happens in the world today is the result of meticulous planning and manipulation by the imperialist bourgeoisie.
But we also should not kid ourselves into believing that everything is down to the operation of pure laws of economics. The foreign policies of governments (especially imperialist ones), and other factors such as the actions of the Opec (Organisation of the Petroleum Exporting Countries) group of producer countries, play an important role in shaping world events.
So what are the general reasons for this crash in the oil price? As the quote above mentioned, the global economic slowdown has had a big effect on demand. The International Energy Agency (IEA) has dampened expectations of a swift recovery in demand for oil:
“The outlook for global oil demand growth for 2015 has been cut by 230 kbd [thousand barrels of oil per day] to 0.9 mbd [million barrels of oil per day] on lower expectations for the FSU [former Soviet Union] and other oil-exporting countries. A strong dollar and the lifting of subsidies have so far limited supportive price effects on demand, which is now seen reaching 93.3 mbd next year, from 92.4 mbd in 2014.”(IEA, Oil Market Report, 12 December 2014)
Measures to curb fossil fuel consumption and increase energy efficiency have also played a part in the drop in demand. (As an aside, this highlights just one of the contradictions capitalism faces when trying to address climate change on its own terms – as oil prices fall, producers are put under pressure and consumers are encouraged to use more again, while renewable alternatives such as solar power tend to become uncompetitive.)
On the supply side, the so-called ‘shale revolution’ (ie, fracking) has not only reduced US demand for imported oil, but, crucially, its producers have recently been able to export – something which was not previously allowed under US law. This adds to the global supply pool and forces prices down even further.
Saudi Arabia – the world’s second-largest oil producer and the main player in Opec – has meanwhile raised eyebrows by abandoning its usual strategy of controlling production to keep prices high and has instead continued pumping out oil at an ever-increasing rate, thus forcing the price down. The kingdom can afford to do this for a while as it has built up vast dollar reserves, but it nevertheless seems a somewhat strange decision when looked at from a purely short-term, financial viewpoint.
Incidentally, imperialist partner in crime Norway finds itself in a very similar situation as its Opec peer, albeit on a smaller scale. It, too, has saved a lot of its oil revenues and is presently increasing production from its North Sea oil fields, despite the slump in price.
So why is Saudi Arabia doing this? On the one hand, there is a simple economic logic to it: if the kingdom keeps pumping out cheap oil, it could win in the long term by acquiring a larger share of the global market – not just by driving direct competitors out of business (or at least undermining their ability to invest in further production) but also by undercutting alternative energy sources.
But is this enough of an explanation? Certainly, geopolitical considerations also sweeten the deal inherent in this extremely risky behaviour.
In a recent interview with RT, Argentinean political analyst Adrian Salbuchi insisted that “it is very important to understand that this is not about market supply and demand. This is much more about geopolitics. It is not the invisible hand of the market that has lowered the price of oil by 55 percent in seven to eight months. This is the invisible hand of the market which is always attached to a muscular arm and to a devilish brain.
“So I think more than watching the price of oil which is what the invisible hand decides, it is much more important that we understand what the muscular arm is doing with the invisible hand and much more important, what the devilish brain in the western think-tanks is designing as part of this ongoing veritable war against Russia, against China, and its allies.” (‘Global War I: geopolitical battle where oil is key’, RT.com, 15 January 2015)
As close to the truth as this statement may be, it does suggest that capitalists can choose to override the laws of the market, ie, the law of value and the law of supply and demand. While the US and its ally Saudi Arabia have very significant geopolitical interests at stake in the current situation, to state that supply and demand have nothing to do with it gives our enemy too much credit.
The global drop in demand for oil is real, as is the crisis of overproduction behind it. This overproduction is not only found on the demand side but also supply. Opec may be a cartel, but it only now accounts for around 40 percent of global oil production. Anarchy in production still reigns supreme in the age of monopoly/oligopoly capitalism and the various gigantic oil producers stand in direct competition with each other. Who flinches first loses.
Now it is equally true that the specific situation we find ourselves in is itself also very much affected by deliberate policies, notably by the brutal destruction of industry, infrastructure and social provision in Libya and Iraq and the resulting anarchy in those countries. Economic logic and political logic are two sides of the same coin. The ruling class rules in its own collective economic interest.
The drive against Russia, China and certain other countries, ultimately carrying the risk of a catastrophic global war, is not simply the result of this or that group’s policy, which could be changed by the replacement of one group with another. In the final analysis, it is the result of the inherent expansionary and crisis-ridden logic of the capitalist-imperialist system itself.
Thus, while a general hostile strategy towards Russia and others certainly exists and has been aggressively pursued, it is still reasonable to assume that the US and Saudi Arabia opportunistically found a way to use the situation they found themselves in to their own advantage – ie, to help keep oil prices low as a very handy addition to their previous economic war in the form of sanctions.
The imperialist bourgeoisie is smart and experienced, but it is no all-powerful puppet master. In any case, trying to exactly separate what is policy and what is the result of economic laws is ultimately a fruitless endeavour, beyond trying to judge the strength and competence of the imperialists – and the objective situation now is as we find it.
Contradictory outcomes
The outcomes are perhaps slightly easier to detail than the complex web of causes, despite the necessity to look into the future. The main losers, at least in the short term, are Iran, Russia and Venezuela, especially the latter two.
At the beginning of December, the rouble had already dropped 45 percent against the dollar, Russia’s central bank reserves shrank by tens of billions of dollars as they were sold off to try to halt the fall, and inflation increased from 6 to 8.3 percent. Despite being hit hard, Russia has so far not fallen into recession, but whether that can be avoided for long is doubtful.
However, Russia is another country that has saved a large chunk of its oil revenues over the past years, and while these may not be as sizeable as those of Saudi Arabia, they should provide it with a year or two’s grace in which to avert disaster. In addition to this, the recent massive deals struck with China, combined with a currency-swap agreement between the two, will also provide a boost.
As some have pointed out, the low oil price could come as a blessing in disguise to Russia, in the sense that it could encourage investment in other industries and make the country less reliant on primary goods exports. However, skyrocketing interest rates will discourage this – something the central bank is well aware of.
As for the US, it has won in the short term, not only in foreign policy, but also at home. Despite its oil-producing companies and states being hit hard (especially those engaged in expensive fracking), and jobs being lost as a result, there is a significant silver lining: petrol prices have dropped drastically in this country of obsessive motorists, where they were already low to begin with.
Whether or not this provides a real boost to the economy by giving extra money to consumers and companies to spend and invest remains to be seen. But what it has undoubtedly already provided is a psychological feel-good factor, which itself is invaluable to the ruling class.
“An intriguing AAA poll suggests that prices are already low enough to make a psychological difference. The poll, taken in March, found that $3.30 was the point at which half the driving population found that prices were fair.” (‘Cheaper oil, fatter wallets and a national opportunity’ by Jeff Sommer, New York Times, 20 December 2014)
However, if the US ruling circles are not careful, their dream of energy self-sufficiency will die alongside its fracking corporations, as shale production becomes economically unviable. And on the international level, it looks as though US policy has driven its protagonists closer together and may well have the unintended consequence of strengthening them in the long run.
In Britain, there are similar hopes that consumers will spend more and that goods will become cheaper. But here, as elsewhere, whether this actually turns out to be the case is doubtful and remains to be seen. In the long term, a low oil price will have hardly any positive effect on the state of the country’s economy.
And Germany is in a similar situation. “For consumers, lower prices for petrol, heating oil and other goods whose price depends on energy costs act like a hefty tax cut. As consumers have to pay less at the pump and elsewhere, they have more left to spend elsewhere.” (‘Billig-Öl ist für Deutschland ein Konjunkturprogramm’ by T Kaiser, Die Welt, 18 December 2014)
However, there is a flipside to this: unlike Britain, Germany is economically more involved with Russia. Through the economic problems caused to Russia and the collapse of the rouble, Germany has taken a hit on the export front. Already in October, exports to Russia had fallen by 22 percent compared to the previous year.
Austrian banks, which are heavily involved in eastern Europe and Russia, have also felt the bite, and the country’s important tourism sector has been hit by a drastic drop in visitors from Russia – significant guests, especially in the upmarket section.
All this adds to the deepening divisions within the imperialist camp itself, especially in Europe. For a while now, large sections of the German bourgeoisie have voiced their concern about the government’s stance towards Russia and what it means for business. And while Chancellor Merkel presently seems hell bent on following the lead of the US and the EU bureaucrats, some of her ministers are starting to show their dismay.
In countries such as Austria, the Czech Republic and others who rely even more on their economic relations with Russia, not only are industrialists pretty-much unanimously against further antagonising their trading partner, but leading politicians have been quite outspoken on the matter.
For example, Austrian federal chancellor (prime minister) Werner Faymann told the Zeit newspaper that: “I see no reason for celebrating – I do not know why we should be happy should Russia’s economy collapse. We are sawing off the branch on which we are sitting if we build a new wall between us and the Russian economy.”(‘Krise in Russland besorgt die deutsche Wirtschaft’, Die Zeit, 21 December 2014)
How long it will take for the negative effects to outweigh the positives for western economies only time will tell. What is clear that this short-term fix will end sooner rather than later. The oil price in itself will not magically solve the crisis of overproduction, nor will it spark the drastic rise in the rate of profit needed for capitalist investment to pick up again at a significant pace.
Furthermore, a future rise in oil prices might provide the trigger to plunge the centres of imperialism back into recession. The potential short-term boost in consumption, which at this point has still not obviously manifested itself, would do nothing more than delay the inevitable.
