The growing downturn in the fossil fuels industry has extraordinary implications globally. While some are proposing theories that this downturn will be short-lived, there simply isn’t much evidence to support an optimistic forecast. Saudi Arabia is openly executing a long term strategy to squeeze “high cost oil producers,” using its unquestioned leverage and the lowest production costs in the World. Europe is facing potential deflation, and the current European recession is forcing the European Central Bank to begin “quantitative easing,” beginning this week, essentially printing money. The Russian economy is in shambles as the ruble weakens, something Putin did not plan on occurring. The Chinese economy has weakened sharply and will likely remain weak into the near foreseeable future. Meanwhile Canada is at the mercy of these global forces, with little in the way of economic reserves to defend its economy, having bet the entire Canadian economy on oil.
CBC’s The National has tonight broadcast a public debate titled “The Politics of Oil” on the current oil economy crisis in Canada. A key issue exposed tonight was the contrast between Canada’s national policies on oil wealth and Norway’s. In the 1990’s both Canada and Norway debated how to manage oil wealth and created funds to invest for future economic development. Today, Norway’s national saving fund is worth $1.03 Trillion while Canada’s, actually Alberta’s fund, is worth only $17 Billion, and has barely increased since the late 1990’s.
In my earlier post on March 11th , “Alberta Bitumen Bubble and the Canadian Economy: An Industry Analysis Case Study,” I reported the stark facts of Canada’s current economic crisis as announced by Canada’s Minister of Finance, Jim Flaherty, and Alberta Premier Allison Redford, directly resulting from pricing forecasts for “Western Canada Select” (WCS) from the oil sands. In that post I also explored the now well-established economic conundrum known as the “natural resource curse.” This simply means that economies that rely heavily on natural resource exploitation, have historically underperformed more diverse economies. This is now most certainly the case in Canada.