Big Oil Companies Should Adopt a Self-Liquidation Strategy

Question for those who might know: Is analysis that the oil price depression will result in a significant economic recession just FUD, or is it grounded in truth?

There is a potential flaw I spot in this piece. The author likens the self-liquidation strategy to what the big tobacco companies did. The problem I see with this is that tobacco is a luxury item. For many, oil is an every day necessity.

This leads into the liquidation issue. If companies such as BP were to liquidate, what would happen? The author mentions that non-oil countries should focus on providing resources and knowledge on oil extraction, but would that be enough to prevent price gouging? If there are no competitors selling oil, I could see the prices skyrocketing once the competition has liquidated all of their reserves. Would our knowledge, tools and "know how" be enough to prevent a monopoly on oil? Our only fallback would be to charge more on the services the author suggested we offer instead of oil.

We will still need oil for things like polymers (e.g. plastics), drugs, and thousands of other applications.

Even granting the questionable base assumption that the sector fully implodes: Cheap(er) energy across all industries versus one industry segment collapsing is a win for the industrialists.

With proper monetary policy, there is no reason to expect it would cause a recession in America. The reason people in the business press are concerned about it is because deflation is associated with recessions. But usually recessions are caused by demand-driven deflation (people demanding less goods, which leads to the prices of goods decreasing), while this is a supply-side deflation (suppliers providing more goods, which leads to prices decreasing). As you can imagine, when people demand less, fewer goods are created, which is a recession, but if people are given more for the same price, MORE goods are created, which is not a recession.

Scenarios where a fall in the price of oil triggers a recession are possible. For example, with bad monetary policy from the Fed you can always get a recession if they do the wrong thing, and drastic changes in oil prices could make that more likely by leading us into a more volatile environment, where past trends could be broken. More likely is that it could lead to deflation in the Eurozone, and since the European Central Bank isn't very good at monetary policy, it could lead to a further Eurozone recession because of sticky wages. If that recession were bad enough it could cause failure of the economies of one or more European countries and trigger global recession.

It's also possible that one or more oil-exporting nations could default on their sovereign debt (Russia, Venezuela), which could cause a panic-driven global recession.