Flashback from 1998: NYT: Commodities’ Price Slide Victimizes Economies of Several Nations

On December 10, 1998, the price for oil reached a low of $10.72 a barrel. That was the lowest price since 1986, and it turns out, it was the beginning of a huge turnaround for the price of crude.
So the low prices were good news, right? Well, not exactly. The New York Times was able to find the downside: Market Place; Commodities’ Price Slide Victimizes Economies of Several Nations:
Victimizes?

What worries analysts now is that the recent decline is a signal that prices will not turn around soon.
Matthew J. Sagers, the director of the energy service of Planecon, a consulting group specializing in the former Soviet Union and Eastern Europe, said the consensus on oil prices ”is that we are going to be here for several years.”
Mr. Brainard and other analysts argue that an extended period of lost economic growth and lower governmental revenues stemming from the drop in commodity prices will raise the pressure on many already troubled governments and economies. That could intensify investor concern and weaken currencies. To defend those currencies, central banks would have to raise their interest rates — which would mean even slower growth.
The impact on Russia, for example, has been stark. The country’s $87 billion in 1997 exports included $21.9 billion in oil, $16.4 billion in gas and $14 billion in metals — about 60 percent of the total.
But the prices of every one of these commodities have fallen sharply and are still declining. The price of platinum, for which Russia is the second major supplier, has dropped almost 12 percent just since July. The price of oil plunged 36 percent — from around $22 a barrel in October 1997 to around $14 in August — and has fallen another 23 percent, to $10.72, since November.

At the time, Kofi Annan approved oil sales to Iraq for “humanitarian goods,” which apparently including several palaces for Saddam. According to a CNN article from 1998:

But Benon Sevan, executive director of the program, turned down Iraq’s request to improve its telecommunications system, saying Baghdad had not answered an October 30 letter requesting information on the subject.
Annan’s endorsement also excluded $20 million to upgrade Iraq’s banking system, a new item Baghdad had not previously discussed with the United Nations, according to a letter Sevan sent to Iraq’s outgoing U.N. ambassador Nizar Hamdoon.

Mr. Sevan unfortunately couldn’t be with us today. It turns out that according to the Volcker Report, he was taking cash bribes from Saddam.

Posted by on August 19th, 2008 at 11:39 am


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.