December 26

The collapse in the price of oil was the focus of last week’s column — and of this week’s. There are other things to talk about, but they don’t begin to compare in importance and impact to the fallout from the oil price crash.

There are two aspects of what has happened — so far, because we are only in the middle of this mega-development. One is the size of the crash, which is clear enough.  West Texas Intermediate, the benchmark for the US oil industry, peaked at over $100 per barrel and is (at this time of writing) around $58 — down a cool 45%. .

But it’s not just the scale of the collapse, it’s also the speed. The $100+ peak occurred in late June. Yet three months later, when you were in shul on Rosh Hashana, the price was still in the mid-nineties, a small enough drop to be considered a normal development.


By early November, the price was stabilizing in the low eighties, after a sharp drop — 15% or so is considered a big deal — and people were shaken. Oil producers were unhappy and oil consumers were happy, but for a short time it looked as though the action was over and things would settle down. In fact it was just beginning and there would be no ‘settle’ — but plenty of down.

After falling to $75 at the end of November, there were a couple of up days in early December. Three weeks later the price was in the mid-50’s and 75, let alone 90 or 100 dollars, was a distant memory…

No wonder everyone is stunned. But the fallout from the crash is just beginning, all over the world. Whatever happens next — a further fall or a recovery — enormous damage has already been done and this spreads outwards, rapidly and remorselessly, like a tsunami.

Take Russia as an example of a country that, as a major producer and exporter, is an obvious loser By extension, companies that do most or all of their business in Russia or are heavily invested there will be hurt by the sharp decline in the Russian economy. So some big Israeli businessmen, such as Lev Leviev and Eliezer Fishman, are facing hefty losses. Those losses will be shared, to greater or lesser extent, by the investors — including pension funds — that bought the shares and bonds of Leviev’s and Fishman’s companies. The banks who lent to them, Israeli and European, will also be hit.

This is a simple, small scale example. But there are countries, companies and banks in Europe which are deeply enmeshed in the Russian economy — or Russia in theirs. Not surprisingly, this is true of the countries on Russia’s borders, and also of major Austrian banks (owned by larger Italian banks) which finance business in Eastern Europe.

But London, at the other end of Europe, is another major loser. The London property market, especially at the luxury end, has already turned sharply lower: first it was the fear among Russian oligarchs that the US and EU sanctions against them over the Ukraine crisis made their assets in London and New York vulnerable — now it is the fact that their businesses are in big trouble and banks may seize their properties for commercial, not political reasons.

This is how contagion works, infecting one country after another via links between corporations and financial institutions. And Russia is just one example. What about Nigeria, another totally corrupt oil-producing country from where tens of billions have been looted and sent to London, New York or Switzerland for  ‘safety’. Not to mention the Gulf states and their royal families, who make the Russian oligarchs look like schnorrers…

Yet there are countries with oil that have won, or at least not lost. Just three months ago, Scotland voted on whether to leave the United Kingdom, with the key argument of the pro-independence campaign being …Scotland’s oil. If the Scots had voted yes, their new country would be bankrupt before the legal procedures making it formally independent had even begun.

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