Oil Gluttony

As I’m not a commodities trader (shocker!), I have not been in the habit of following the daily ups and downs of the price of oil.

Except that, lately, you’d have to be living under a rock not to know that the price of Brent crude and West Texas Intermediate have collapsed, breaching the $30-level and hitting a 12-year-low.

Of course, the weakness in the oil market has already been big news for months now, as prices nosedived from around 60-70 dollars just seven months ago.

In this new year, however, cheap oil has become THE economic story. The price seems to be heading ever lower ($28 today), and nerves are getting frayed over the ramifications for the global economy at large. Things will only get worse for oil now that sanctions against Iran have been lifted, allowing that nation to openly add its considerable oil production to the glut.

Naturally – unless you are in the oil business, and many people are – you might see crude at $30, or even lower, as a net positive. Gasoline prices in the US have dipped below two dollars a gallon, almost half of the price 18 months ago, creating a windfall for American drivers. Gas in Finland is also relatively cheap now, around $6 a gallon, compared to the more normal $9. (I remember that when I worked at my father’s service station back in high school, and before the 1973 oil shock, gas was a mere 0.29¢ a gallon.)

Strangely, Obama’s critics, so eager to blame him when gas was almost $4, seem to be withholding their praise for him for making gas so cheap now – perhaps suddenly realizing that presidents don’t have much to do with the price of gas.  Funny how that works.

For American families trying to live on a tight budget, cheap gas brings welcome relief, of course. On the downside, however, I worry that cheaper gas just gives road-happy Americans even less incentive to alter their wasteful lifestyles. The privilege of pumping carbon into the air just got a lot cheaper, so why hold back? Drive, baby drive!

Still, where cheaper oil is a having a not-so-positive effect is with the producers, especially those countries that depend too much for their own good on drilling deep into the ground and pumping petroleum to the surface.

Oil-producing nations, most prominently Saudi Arabia and Venezuela, have been in the media spotlight as the current glut exposes how their over-dependence on exploiting fossil fuels threatens to unbalance their economies. Finland’s neighbor Russia is also certainly one of those nations that has gotten a lot of media attention as a country facing tougher times if the oil glut continues. The reports are often bleak.

A friend on Facebook recently wondered why you don’t hear similarly dire news about some less-known oil producers, especially another Finnish neighbor, Norway.

That got me wondering, as well:  what exactly is Norway’s situation, and how does it compare to Russia’s own much more publicized dire straits.

In some ways, Norway and Russia are in the same boat. Petroleum makes up between 66-70% of Russia’s exports, a significant enough share. Norway relies less on hydrocarbons, but only by a little, something like 64% of its exports. Both are largely one-trick ponies and both are seriously affected by the downturn in oil.

There is a nifty measurement, the Economic Complexity Index, that expresses how complex a nation’s economy is, based in large part on the diversity of the country’s exports. Both Norway (in 33^rd place) and Russia (50^th) are ranked well below more economically balanced nations, such as the US (14^th) and Germany (2nd). I was a bit surprised to see that Finland ranks a very respectable 8^th. Good for Suomi.

So, both Russia and Norway are similarly disadvantaged by having too many of their eggs, so to speak, in the same basket. There seem to be big differences, however, in how well each country might be able to cope if that basket of eggs is upended.

Reuters has reported that the budget for the Russian government is projecting a 3% deficit for this year – based on oil at $50. If oil stays at $30, the deficit will grow to 5%. That’s not necessarily a huge deficit, mind you. Still, oil at $20 or less, as some analysts have predicted, will put even more strain on government finances.

Making up for the shortfall might force Russia to inflict additional economic pain on its citizens, who are already dealing with a recession. This would involve cutting spending and raising taxes, measures that have already sparked some strikes by protesting truck drivers.

Another tack would be to dip into the country’s “rainy day” funds, two sovereign wealth funds that contain some $130 billion. Those accounts have already been depleted by $50 billion since 2014. According to an analyst quoted by Reuters, resorting to using those funds to plug the budget gap would drain them dry in a little over a year, if oil stays low that long.

By contrast, Norway is in a much better situation. It is not in a recession and has no deficit. Yet. In 2014, it still enjoyed a budget surplus of 9% even after a downward trend over the last few years.

Still, the oil glut has certainly hit the Norwegian economy, and there are reports the country may be forced, for the first time ever, to withdraw from its own “rainy day” fund. I find it somewhat amazing, that this fund contains a whopping $856 billion, more than five-times that of Russia’s.

Little Norway, it seems, has done a comparatively much better job managing its oil wealth. Norway is also not under the kind sanctions that are hampering Russia’s economy, though losing the Russian market for its third biggest export, salmon and other seafood, due to a retaliatory ban imposed by Russia in reaction to those sanctions has no doubt been problematic for Norway.

In short, it seems that the depressed oil market isn’t a likely to trigger in Norway the same kind of economic turmoil – and potential political instability – that Russia might be facing.

There’s been much talk about how Vladimir Putin’s reelection in 2018 depends on maintaining an economy healthy enough to keep the Russian people happy. Presumably, keeping the electorate happy in Norway, often rated as one of the happiest countries on Earth, is a much easier task.

In all seriousness, though, I don’t think anyone would think the geopolitical effects of the oil glut on Norway, a small, stable, prosperous country, are anywhere as worrisome as what the bottom falling out of the oil market could mean for a large, somewhat hard-pressed nation like Russia.

Interestingly enough, Finnish TV has recently started broadcasting a miniseries from Norway called Okkupert (“Occupied”).

The premise of this political thriller is that Norway, having developed the technology to harness an unlimited amount of power from a fictional element called Torium (named after Thor!), intends to unilaterally shut down its North Sea oil rigs and share the new technology with the world, all in the name of a future free of fossil fuels. This doesn’t sit well, however, with the powers that be within the EU, which shockingly enlists Russia to do the dirty work of invading and occupying Norway in order to keep the crude flowing.

It's farfetched, as thrillers often are. Only the second episode has aired so far, so we don’t yet know whether the forces of green energy or black energy will prevail in the end. 

Meanwhile, it’s safe to say that the oil glut crisis in the real world, though harsh enough on some economies, will not likely lead to high drama worthy of a thriller. Well, not in Norway anyway.  

The Other Side of the Coin

The other day I wrote about the Prosperity Index, just one of a slew of international surveys that usually ranks Finland highly in some important aspect of how societies live. These rankings, of course, depend on different criteria and methodology, and to be fair, there is more than one way to size up a country.

One alternative ranking that showed up in my Tweeter feed (or Facebook feed, I forget) is the Happy Planet Index, which focuses on evaluating countries according to “sustainable well-being”.

This survey gives a different perspective on the livability of different countries, with mostly tropical, less prosperous, nations topping the list. These nations, according the Happy Planet Index, are is some sense the “happiest” for people and, as the name implies, for the environment.

The HPI is calculated based on three comparatively simple measurements: life expectancy, perceived well-being, and ecological footprint.

Red-eyed Tree Frog. Presumably, a happy resident of Costa Rica.

After crunching these numbers, the folks behind the HPI ranked Costa Rica as number one in sustainable quality of life, perhaps not a surprise considering the country’s reputation for eco-tourism. Apparently, it also has a decent standard of living for Central America. I’ve understood a number of Americans have chosen it as the place to retire. I probably wouldn't mind living there myself.

Meanwhile, Finland comes in at 70^th in the HPI list, in the middle of the 151 countries surveyed. The US is ranked 105^th.

While Finland had slightly higher scores than number one Costa Rica in life expectancy (80 years versus 79.3) and well-being (7.4 vs. 7.3), it loses some ground when it comes to its ecological footprint.

The footprint is what sets the Happy Planet Index apart from similar surveys I've seen. It is a commonly used measurement indicating the amount of land required per person given a country’s current level of consumption.

Costa Rica’s footprint of 2.5 means two and a half hectares (six acres) of productive land are needed per resident to maintain the Costa Rican lifestyle. By comparison, each Finn requires 6.2 hectares (15 acres), the 5^th highest of the European countries. The footprint of the US is higher still, 7.2 (18 acres), which globally is 7^th overall. (Qatar has the highest.)

When it comes to ecological footprints, tropical lands do have a bit of an edge. Humans evolved in the tropics, and though that big brain of ours has allowed us to push into environs that nature alone didn’t prepare us for (like chilly Finland), setting up house in marginal habitats so far from Mother Africa does come with a higher cost.

Also, I think it’s interesting how the HPI highlights the tradeoff between ecological impact and quality of life. Most folks, even the environmentally minded, would appreciate some balance between the two. Let’s face it, countries with the lowest ecological footprints, like Afghanistan, aren’t necessarily great places to live.

Costa Rican coffee plantation. Note the blue sky.
Photo: Dirk van der Made.

Another country comparison that I recently saw reveals the less-attractive sides of EU countries, highlighting the negative characteristics that each country ranks first in.

Some of these “firsts” point to serious problems, such as the UK coming in first in terms of cocaine use. Others are much less dire, like the fact that France has the lowest usage of the English language. I would suspect the French don’t see this as somehow a negative trait. Mais non! 

One of the most revealing of the “negative” distinctions belongs to Denmark, which has the EU’s lowest per capita concentration of, wait for it…Zara clothing stores.

Now, I do realize I’m not the target market for Zara. Believe me, I’ve spent enough time in the painfully alien world of Forever 21 or New Look or similar stores, while my daughter tried on clothes, to know that those places are not trying to draw in any foot traffic at all from guys like me. Just the opposite. So, from my point of view, if a lack of Zaras is the worse that Denmark can throw at you, then life is certifiably bearable there, maybe even as happy as in Costa Rica.

As for Finland, its negative claim to fame is something much less bearable – the EU’s highest rate of depression. 

Of course, people can suffer from depression at any season, but it seems all the more understandable this time of the year. A medically recognized form of depression, seasonal affective disorder (aptly abbreviated SAD), can be a serious problem here in the dark, dark far north, so distant from the tropical sun of our primeval ancestors. The disorder reportedly does affect some 9.5% of folks in the even-darker, northern part of Finland.

And no wonder. The days are already short (only six hours, sunrise to sunset) and, before the coming of the permanent snow, it’s dark and cloudy. Incredibly cloudy

This November, there were only 12.4 hours of actual sunshine in Helsinki, compared to a normal average of 37 for the month. In places, it was worse. Kuopio, in eastern Finland, got a mere 12 minutes (normally, 22 hours) of the sun peeking through the clouds. If you were taking a shower at the wrong moment or stuck in some drab meeting room, you would have missed it completely. And that truly is depressing. 

Luckily for us, the Winter Solstice is almost here. It has to get better after that. It has to.

The Winter Solstice at Stonehenge.
Photo: Mark Grant.

 

The Country Where I Quite Want To Be

Life is good in Finland. 

I have to confess that’s one of my main motivations for this blog – a certain satisfaction, maybe dangerously bordering on smugness, that I have in living in a country that has figured out how to do things right. The best place on earth.

Okay, that’s perhaps an exaggeration. An oversimplification. And it’s certainly nothing I can take credit for myself. It was mostly by accident that I was lucky enough to end up in one of the world’s sweet spots.

When I used to imagine myself living abroad (and I did sometimes), the expatriate life I envisioned for myself was, for some reason, in Mexico City. Yet, a series of random circumstances carried me, apparently rudderless, in quite a different direction. Maybe not exactly to my credit, but there it is.

Map credit: Legatum Institute (TM)

The lucky thing is the spot of earth where I did end up seems to about the best place I could hope for. Of course, I could just be telling myself that to compensate for not ending up in Beverly Hills instead, or in Monaco, quaint, unassuming towns that I’ve heard also  have their good points. At least, people seem to think so.

It’s no doubt healthy for everyone to accept, even embrace, our little corner of the planet as the place where we always wanted to live. Maybe that’s the coping mechanism that all of us, no matter where we reside, are forced to employ – unless we actually do live in Beverly Hills or Monaco. Maybe the happy residents of Fargo, North Dakota, open the door every morning, drink in the landscape of flat frozen fields and declare, with gusto, “By golly, this is the best place on earth.”

Like I say, a coping mechanism.

Still, despite some obvious items missing from my personal wish list (real mountains, intelligible local language, sunshine), I really am not deluding myself in thinking that life in Finland is good. There is proof.

By happy coincidence, that proof often comes in a form that appeals to some quirky, even geeky, weaknesses of mine: maps, metrics, and country comparisons.

Every few months, this or that international organization or think tank publishes their rankings of the best, the safest, the freest, the happiest, the whatever, countries to live in. Often this accumulation of massive country-specific data is presented in easy-to-grasp interactive maps or infographics, always a bonus in my book.

It’s good to keep in mind that these surveys may have their flaws in methodology and possible bias, but one thing is consistent and obvious in almost all of them: certain parts of the globe, especially the Nordic countries, always tops the lists. Every time. Finland, unsurprisingly, is usually in the top five or ten.

It’s a nice confirmation that, despite the mosquitoes, icy sidewalks and excruciating lack of sunshine for months on end – did I mention that? – there is no better place to be.

The most recent of these rankings that I’ve run across is the Legatum Prosperity Index™, published since 2009 by a think tank based in the London neighbor of Mayfair (reportedly, also not a bad place to live).

In the Legatum list for 2014, Finland ranks as the eighth most prosperous out of the 142 countries surveyed, unchanged from the 2013 report. In 2012, it was seventh; in 2010, third.

The top three countries are Norway, Switzerland and New Zealand, all places I could so see myself living (real mountains!). Norway has been number one for five years running. Oil obviously helps. The US barely made it into the top ten, rising one spot from 11^th place last year (12^th in 2012).

And this brings me to my not-so-honorable ulterior motive for fixating on such rankings. The poor showing that the US often merits relative to other developed countries confirms my bias that America is, well, going backwards. I blame Ronald Reagan. I seriously do.

Such rankings are always good for liberals, like myself, who like to point to Europe/Scandinavia as models of harmonious egalitarian societies with strong social welfare systems – the complete opposite of the type of society that politics has been tugging the US towards since 1980. It’s not as much about gloating (I hope), as exposing Americans up to the novel idea that the USA is not necessarily Number One. Reducing that message to hard facts and figures helps.

In most of the eight categories the Legatum Institute assessed for its report, Finland ranks ahead of the US by around six places, and the US outscores Finland only in two (Economy and Health).

Maybe it’s not much of a surprise that the US ranks nine places higher than Finland in “Economy” (17^th versus 26^th), though the two countries were separated only by two spots in 2013. I am guessing this is due mostly to the US finally pulling ahead of Europe in economic terms five years after the nominal end of the Great Recession.

Obviously, the US economy is humming along relatively better, while things are still pretty stagnant or even going downhill a bit in Finland, which has occupied the 26^th place in the Economy category two years in a row. This is after dropping from its high-water mark of 9^th place in 2010, when Finland ranked 3^rd in the survey overall.

What is shocking to me, however, is that Finland’s ranking in “Health” is 14 places behind the 1^st place finish of the US, especially when you consider the bad rap that US health care gets compared with the generally good reputation of Finland’s terveydenhoitojärestelmä (“healthcare system”).

Drilling down into the details of the report’s methodology reveals a possible reason for this disconnect. Legatum’s scoring for “health” seems to be based quite a bit on how much money a country spends on health care, not necessarily how effective or efficient all that spending might be.

It’s a bit like an airline passenger thinking his seat is much better than an entirely identical one because he paid twice as much as for his seat as his fellow traveler did. To make a more exact analogy, it’s like paying 151% more ($8895 in the US versus $3544 in Finland) for a middle seat (life expectancy of 78.7 years) instead of an aisle seat (80.6 years). If it costs more, it must be better! Right?

But the biggest differentiator between the two countries closest to my heart is the category of “Safety and Security”, where Finland ranks 3^rd in the world compared to America’s much less comfortable 31^st spot.

This category attempts to measure not only ordinary crime, which is low in Finland, but also levels of persecution and civil unrest, which are virtually non-existent here.

While in Finland more people feel safe walking alone at night compared to the US (83.5% versus 76.5%) and fewer report being victims of theft (11.1% vs. 17.%), more Finns have been assaulted than Americans (2.4% vs. 1.5%) according to the report. That last point is surprising and, I have to say, a bit doubtful.

Also, considering the violent reputation of American streets, it’s amazing to think that fewer than two Americans out of a hundred have ever been assaulted, thought when I think of it, I have never been attacked when I lived in the States. It might just go to show that the fear and hype of crime are sometimes greater than the reality.

In terms of persecution, both Finns and Americans have about the same freedom to safely express political opinions, but the US suffers three times more from “group grievances” (4.2 vs. 1.4, on a scale of 1 – 10) and “state sponsored political violence”.

You only have to look at Ferguson, Missouri, to see why this rings true. Such tragic, incendiary, high-profile incidents aside, I too often see reports from the US of police shooting citizens under circumstances that might be justifiable, but are often murky and incites distrust. That's something that doesn’t happen here. It helps that Finland isn't awash in guns, for which I'm thankful.

The Legatum ranking between the US and Finland is much the same when it comes to other indicators of civil unrest. Finland also does better than the US in all of those measurements – except one, “human flight”, which I understand to be an indication of population outflow from a country, apparently due to civil strife.

I’m not surprised by the US’s good score here, considering the fact that people risk their lives, and actually die, trying to get into the country. I can't imagine people trying to escape the US. I am puzzled, though, by Finland’s score, which is much closer to the global average. There are no major waves of people fleeing Finland that I’m aware of.

And why would they, since this is the best (well, 8^th best) country on earth? Maybe they’re simply solar migrants, escaping to some elusive land where they’re heard that the sun, the long-forgotten sun, really does shine. 

 

Monty Python was wrong about the mountains, however. 

(https://www.youtube.com/watch?v=JGWqtwhS2KY)