https://www.lemonde.fr/economie/article/2025/05/18/avec-un-baril-sous-la-barre-des-70-dollars-les-enjeux-d-une-nouvelle-donne-petroliere_6606617_3234.html
Perplexity AI:
What is the main argument of this piece?
The main argument of the Le Monde article is that the global oil market is undergoing a significant shift in early 2025, marked by a sharp decline in oil prices, with Brent crude falling below $70 per barrel. This new phase is driven by two major factors: the sluggishness of the global economy-particularly due to the shock from increased U.S. tariffs-and the Organization of the Petroleum Exporting Countries (OPEC) engaging in a price war. The article emphasizes that this downturn in oil prices marks a departure from previous oil shocks and price surges of the past decade, signaling a "new deal" for the oil sector with uncertain consequences for the global economy, especially in sectors like transportation, petrochemicals, and plastics.
What challenges do oil-producing countries face with this price trend?
Many oil-producing countries depend heavily on oil revenues to fund government budgets and public services. The sharp decline in oil prices to multi-year lows poses a significant threat to these economies, forcing them to reduce government spending and potentially leading to financial instability and political unrest.
Wealthier producers like Saudi Arabia and the UAE, which have ambitious economic diversification projects (e.g., Saudi Vision 2030 and the Neom city project), require oil prices well above current levels (at least $90 per barrel) to sustain these initiatives. With prices below $70, these countries may need to tap into reserve funds or increase borrowing, which, while feasible for now, is not sustainable long-term.
Vulnerability of Less Wealthy Producers
Countries with fewer financial reserves, such as Iran and Iraq, are especially vulnerable. Iran, already constrained by international sanctions and shrinking customer bases, may be forced to offer steep discounts to attract buyers. Domestic pressures, like the need to maintain energy subsidies to avoid unrest, further complicate the situation.
Iraq, where oil accounts for about 80% of government revenue, could face delays in public sector salary payments, increasing the risk of domestic dissatisfaction and unrest.
Political Instability
In nations like Libya and Nigeria, where political divisions or economic fragility are pronounced, reduced oil revenues can exacerbate tensions, fuel competition over limited resources, and heighten the risk of conflict or unrest.
Increased Competition and Market Share Battles
With demand stagnating and supply rising, especially from non-OPEC+ producers such as the U.S., Brazil, and Canada, oil-producing countries face intensified competition for market share. This could trigger further price wars, undermining efforts to stabilize or raise prices.
Pressure to Adjust Production
OPEC+ members are caught between the need to support prices through production cuts and the temptation to increase output to maximize revenue in a low-price environment. This dynamic increases the risk of market oversupply and further price declines, making coordinated action more difficult.
Long-Term Demand Uncertainty
Structural changes, such as the shift toward electric vehicles and alternative fuels (notably in China), are reducing long-term oil demand growth. This trend, combined with economic slowdowns in major markets like the U.S. and China, threatens the future revenue base of oil-dependent economies.
Access to Financing
While some Gulf states can access international credit markets to bridge fiscal gaps, others-particularly those under sanctions or with weaker credit profiles-face higher borrowing costs or limited access to funding, compounding their fiscal challenges.
In summary, oil-producing countries are confronting a complex mix of fiscal, political, and structural challenges as oil prices fall. The immediate risks include budget deficits, social unrest, and increased economic vulnerability, while longer-term threats stem from evolving global energy demand and intensified competition in a well-supplied market.
Why is a $70 barrel considered a critical threshold for global economies?
A $70 per barrel oil price is considered a critical threshold for global economies due to its pivotal role in balancing the interests of oil producers, consumers, and the broader financial system.
Key reasons include:
Support Level for Producers: For many oil producers, especially those with higher production costs or ambitious fiscal needs, $70 serves as a crucial support level. Prices below this threshold can erode profit margins, threaten the viability of higher-cost projects, and strain national budgets, particularly in countries heavily reliant on oil revenues.
Profitability and Investment: At $60–$70 per barrel, many oilfields-especially unconventional and higher-cost operations-face profitability challenges due to cost inflation and supply chain pressures. Prolonged prices below $70 can force producers to cut investments, delay projects, or seek aggressive cost reductions, impacting future supply and employment in the sector.
Global Economic Indicator: Oil prices at or below $70 often reflect broader concerns about global economic growth, demand destruction, or geopolitical instability. Such levels can signal weak industrial activity, trade tensions (such as the U.S.-China tariff war), or oversupply, all of which have ripple effects on global financial markets and economic sentiment.
Impact on Consumers and Inflation: While lower oil prices can benefit oil-importing countries by reducing transportation and energy costs, persistent declines below $70 can indicate underlying economic weakness, which may outweigh the benefits of cheaper energy. Furthermore, oil price shocks historically have significant effects on inflation and real economic activity, especially in periods of heightened volatility.
Market Psychology and Technical Support: The $70 mark is also a psychological and technical support level for traders and investors. Breaking below it can trigger further bearish sentiment, increase volatility, and prompt additional selling, amplifying price swings and uncertainty in energy markets.
In summary, $70 per barrel is a critical threshold because it represents a balance point: high enough to sustain most producers and maintain industry investment, but low enough to support global growth and consumer spending. Movements below this level often signal or trigger broader economic and financial challenges worldwide.
Vulnerability of Less Wealthy Producers
Countries with fewer financial reserves, such as Iran and Iraq, are especially vulnerable. Iran, already constrained by international sanctions and shrinking customer bases, may be forced to offer steep discounts to attract buyers. Domestic pressures, like the need to maintain energy subsidies to avoid unrest, further complicate the situation.
Iraq, where oil accounts for about 80% of government revenue, could face delays in public sector salary payments, increasing the risk of domestic dissatisfaction and unrest.
Political Instability
In nations like Libya and Nigeria, where political divisions or economic fragility are pronounced, reduced oil revenues can exacerbate tensions, fuel competition over limited resources, and heighten the risk of conflict or unrest.
Increased Competition and Market Share Battles
With demand stagnating and supply rising, especially from non-OPEC+ producers such as the U.S., Brazil, and Canada, oil-producing countries face intensified competition for market share. This could trigger further price wars, undermining efforts to stabilize or raise prices.
Pressure to Adjust Production
OPEC+ members are caught between the need to support prices through production cuts and the temptation to increase output to maximize revenue in a low-price environment. This dynamic increases the risk of market oversupply and further price declines, making coordinated action more difficult.
Long-Term Demand Uncertainty
Structural changes, such as the shift toward electric vehicles and alternative fuels (notably in China), are reducing long-term oil demand growth. This trend, combined with economic slowdowns in major markets like the U.S. and China, threatens the future revenue base of oil-dependent economies.
Access to Financing
While some Gulf states can access international credit markets to bridge fiscal gaps, others-particularly those under sanctions or with weaker credit profiles-face higher borrowing costs or limited access to funding, compounding their fiscal challenges.
In summary, oil-producing countries are confronting a complex mix of fiscal, political, and structural challenges as oil prices fall. The immediate risks include budget deficits, social unrest, and increased economic vulnerability, while longer-term threats stem from evolving global energy demand and intensified competition in a well-supplied market.
HAPPY JOURNEE DES PATRIOTES TO ALL!
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