Sinking crude costs used to spell rising prosperity automatically. Today the economics, and the ecology, are a good deal more complex than that
Christmas came early for drivers this year, with a steady fall in the price at the pump of 15p a litre since the summer. Underlying the cheaper petrol is a mighty oil crash, with the price of a barrel of Brent crude near halving, from $116 in June to a mere $63 on Friday night. The frightening exposure of the big oil producers is on plain view in Russia, but – in years gone by – the oil-importing western economies as a whole would, like cheering motorists on forecourts, have regarded cheap fuel as an unalloyed boon.
This time, however, a decidedly uneasy air surrounds oil’s big dip. At first blush, this seems baffling. Oil’s ups and downs have reliably given rise to an equal and opposite swing in the mood of industry. All three late 20th-century slumps – 1974, 1980-81 and 1990-91 – followed hot on the heels of costlier crude. Less often stressed is the way that oil’s great reverses have pumped fuel into the economic engine. Britain credits (or blames) its then-chancellor’s policies for its rapid late 1980s expansion with the phrase “Lawson boom”, but the effective collapse of the Opec cartel’s discipline and the associated halving of the crude price in 1986 was just as important. For all the new-age talk about living on thin air in the late 1990s, the dotcom boom got going amid another glut of the gloop that lubricates western prosperity.