>> gas less than $3 an gallon, couldn't be anything wrong with that? turns out the plunging price of oil has domino effects in all different directions. that's inside story.

hello, i'm ray suarez. in the last 30 years when the price of a barrel of oil has zoomed it's been painful. household budget strain. industry struggling to keep up with cost. pressured upwards to the making and moving goods. in the last few months the cost of a barrel of oil has fall finance $115 to $80. good news, right? but like any good tale involving crude, the answer is more complicated than that. prices at the pump are finally helping to keep pocketbooks plump. the average cost of gas per

gallon around the u.s. is now $3.04, the lowest since 2010. >> we travel a lot more. go home more. it's nice. >> in 17 states the price of gas is under $3 a gallon. only deal necessar dealers in hawai'i charge more than $4. since june oi gas has dropped 0.005 per day. in june the international oil said that the u.s. beat russia in energy extraction. now a barrel costs around $80. but only analysts chris edmunds warns this bottle of the barrel price could spell trouble for

domestic producers. >> at $80 to $85, you begin to hear companies talking about cutting back. at $70 and below you see companies cut back. >> and the u.s. companies are not the only ones affected by this cheapening commodity. in europe, demand is slow due to a weakening economy. in china it is shaking up the market. and places reliant on high oil prices like iraq, iran and venezuela, domestic and foreign policies may shift as governments have less income. the meeting of opec is scheduled for late november in vienna, austria where price, supply and demand are sure to top agenda items. the plunging price of oil today on the program, who does it help? who does it hurt? how long might the price of this

recently volatile commodity stay low. investment houses have predicted a per barrel cost. goldman sachs has gone to $70. joining us for that conversati conversation, professor of international finance and business at george washington university, and visiting research fellow at the kay toe institute, and senior fellow and director of the energy security initiative at the brookings institution. is this at least domestically nothing but a feel-good story, especially those who are end users . >> i do believe producers based in terms of existing production will weather the storm better

than people realize because when people say at $80 we collapse, i don't share that view. i think we can go a lot lower and keep our existing production but certainly no one is going to rush out and drill new wells at these prices. >> professor, walk us back from the pump backwards? what happens when on the world's stock market the price of a barrel of oil begins to drop. >> it's key of why it's dropping. what we have is a perfect storm. gas and shale are coming online. we know it's coming online. right now the saudis are in the game. this is in over supply right now. there is bidding for storage. there is no disruption in refining and the saudis are oversupplying the world for a lot of reasons, geopolitical reasons and economic reasons. perhaps they're helping the u.s. tackle the russia issue.

because at $100 a barrel putin has a problem balancing its books. secondly, as the price of barrel goes lower, it brings down the production of shale oil. there is debate about what that price is, some say $70, some say lower. i believe it is lower, and then there is the iran issue. don't under estimate the saudis are fully aware this is hitting the runyons quite hard. there are a lot of other issues. most importantly long-term price of oil is dependent on growth. that's what you mentioned in the opening of your introduction, europe is basically flat, and the mint countries, malaysia , indonesia, it is not enough jump start the economy.

>> when opec really had the wh whip hand and could cause gyrations in world markets after their meet negotiation middle europe, countries could open and close the taps at will. but have things changed to the degree that even when prices are low they need that money coming. >> there are some states in opec, the saudis in particular, they are far more concerned with a global long-term price of oil. they want it to stay stable. they want it to stay stable in the long term. but other opec members states like venezuela, states like iran, as mentioned, they're extremely dependent on the short-turn revenue they get from this oil. and so the iranians have asked the saudis to stop producing so

much, but the saudis are very well aware that the iranians cannot handle that. practically the countries in it are experiencing different things. >> short answer, some places can't leave it in the ground. they just can't. >> yes. venezuela in particular. the vegetable government is on the brink of default. chavez and his successor ran up social policies, economic changes. they used their oil to bail out countries, cuba, and that's now coming home to roost. they spent money, it's now coming due, and the oil is not worth as much as it used to be. >> it's deeply devalued. they began to withdraw some of the subsidies on consumer goods, is the next step having to go to

the barbados, haitians, others, saying we can't do it any more. we can't afford it. >> that's absolutely the case. but keep in mind that we can take a long-term view, and it's hard for venezuela to take a long-term view, this is a country that has resources greater that saudi arabia, and in the right leadership in a 10-year, 20-year horizon, it could be a powerhouse in the market. >> we jump in the way of big international intrigue, but the world has just gotten a raise, hasn't it? >> in some ways. >> if you head to the grocery store somewhere in the world. if you're gassing up a motorbike, a truck, you just have gotten a little raise. >> basically they have, but on the domestic truck and the

international front, at the people level, this is all good, except for the major oil exporting countries. they're going to take a hit. but having said that, you've got to understand the medium- to long-term view here. there is a lot of stuff coming down the pipeline that will keep oil low, and that's the new normal now. you've got shale oil coming online, and lockheed martin just released announcement that fusion is the new great nuclear power over the next five or ten years. who knows. >> you said the last time. >> yes, i know. >> let's hope this one is for real. >> but even as you take that out of the equation and you're just taking a look at shale oil and gas there is enough pressure in the system. and saudis can keep this up for a while. they have $7 billion in reserves, and you ask if other countries can be swing states, and the bottom line is no one can, and it's just the saudi game right now. they can keep it low for quite some time at quite low prices.

but they're just delaying the inevitable . opec has lost some power in terms of setting prices now. >> because there is so much supply, and non-opec producers can do what they want. >> that, and long-term economic growth, which is the driver of i-8 oil prices always. >> once oil becomes cheap, taking the pressure off to find a new answer quickly? >> almost definitely, yes. the fact is people tend to be opposed to conservation because it's a hassle. if oil prices are lower, then they will less likely to invest in those. we're seeing these in the european union. the european union wants to extricate itself from being so dependent on russian oil. one of the ways they plan on doing that is renewables. if oil gets cheaper, they may be less inclined to do that. >> when we return with more

inside story in just a moment we'll continue our look at vulnerable redream regimes that fund their operations through crude oil. they can't let it sell cheap, but they can't let it sit in the ground because they need it today. how does that play out in one year, two years, five? stay with us.

>> we're back with inside story. i'm ray suarez. my car specifies high test gas. when it was crazy expensive i would drop a grade or two because it seemed crazy to pay that much money for a tank of gas. the other day, the cheapest price i had seen in years. if you work your way back from a pump in delaware to the world supply chain whose anguish matches my joy at the pump?

right now the united states is producing a huge amount of oil and natural gas. when the price of crude oil drops what happens to gas and it's relationship if there are buyers of energy who can switch back and forth between the two. if there are, you'll tell me. what happens to gas? how is gas affected by oil? >> well, obviously gas gets pumped up, no punish intended. but one has to be a little careful here. while you may enjoy filling up the car with the highest premium there is a double-edge sword. states like texas, where if you look at the oil tax revenues are coming out of taxes paid on oil over $4.6 billion. it's $4 billion in alaska, and $2 billion in north dakota, there are states that are going to be hit by this. there is that element of it. and in a not-so-distant future the u.s. is going to be an

exporter of energy, not an importer of energy. transition is coming whether it's five years from now to ten years from now. it is a double-edge sword, and i believe the low oil prices will be enjoyed for the short term. >> but if i'm running my plant with fossil fuels in order to carry on whatever process i'm doing, didn't i also just get a raise? because running my looms or my mill or my packaging machinery also just got cheaper. >> you certainly do, ray, and it's been shown, for example, that a lot of refiners have converted using natural gas in place of oil as a fuel and operations. if i could make one point, most forecasters look at 20 to 25 years still believe we're looking at a change in the world

oil market from 90 million-barrels consumed worldwide today to somewhere close to 130 million-barrels in the future. those numbers can be adjusted, but it shows in the long run as india, china and other countries resume their economic growth, we have to refine oil in the world. year. we have to replace that oil before over all production. i think in the long run people are estimating by twenty20 that china will have more cars than america. it has to run on petroleum, and that's the critical factor. the next few years could be painful. >> to find that equivalent

. they'll drill anywhere, everywhere, under any circumstance, is that hunger going to ride roughshod over places that people say we can't drill here safely. >> i think until the last six months or so it was driving people to look more at the shale gas, shale oil, but in a period where we're seeing oil prices falling so fast . >> saying that the revolution is oil if oil becomes too cheap. where do you come down on that? >> i agree. >> those guys who are making

$100,000 a year with a high school diploma, and flying out to places in wi lliston, they want that to happen as well. will it be the same? >> the north dakota did a study of this exact question and came up the best fields in the balkans will remain $28 a barrel, and higher cost fields will be at production at $42 a barrel. that does not say what you would do if you were drilling today. these are existing wells that have largely been because they come on so fast and crash downward have largely been depreciated through the tax code. >> what about new production, will it punch a hole in the ground. >> no, new production you're certainly going to cut back on. >> which has consequences with state revenues, but also for the united states treasury,

professor? >> yes, ultimately it depends on, again, and i keep coming back to this. it's growth-related. all of this is growth-driven. yes, the u.s. treasury is going to take a hit if some states revenues drop. these are pretty large states. talking about texas. but the other part of the puzzle here is we're winding down q 3, and it will be less the pump. we're teetering when people are coming back. they're being able to exhale and things are getting better, and the consumer mind lower oil prices means that things are stabilizing and getting better, but in the economic view this is a double-edge sword. >> there is an he is say in this week's "economist" magazine

called "deflation." they say even as little deflation as there is in the world, it would be lower still with this lower oil price leaving some economies teetering on dropping prices at a time of very small or no raises, which sets you into that cycle of people hoarding money because they think things will be cheaper if they wait to buy them. >> i think this is janet yellen's worst nightmare that oil prices have dropped so fast and so quickly, for that precise reason. but i do believe in the long run, because we are going to be more energy sufficient, and exporting energy at some point down the road, this is a win-win for us. it's just managing this medium-term and short-term phenomenon. >> when we come after the break, what if the price of oil stays low for a while.

on the world stage you would see spike in crisis. iraq is in chaos. syria's pipelines are in meltdown. libya's tumult continues, and a barrel of oil costs $79. as a commodity is oil behaving differently? are we no longer as jittering in pricing in the risk? stay with us.

>> welcome back to inside story on al jazeera america. i'm ray suarez. the price of oil today on the program, you may already notice that the price of gasoline is declining. the price of oil, goods pushed out by the price of petroleum. food, clothing, heating and cooling your home may take longer to respond. how will this country's economy and the world respond to a lon longer spell of low prices? still with us, a professor of international finance and business at george washington university. an investing research fellow at the cato institute, and senior fellow and director of the energy security initiative, and emma ashford, iraq, which is supposed to be rebuilding itself using oil revenues. harder to do at $79 a barrel than $125.

and iran funding groups here and there all over the middle east, creating mischief, let's say, to put it most charitybly. most of these things become more difficult when you've got a lot less money coming in, doesn't it? >> absolutely, yes. and there are several countries that really are going to be very worried about this, you named iraq, iran, also venezuela, russia in the long-term, not so much in the immediat medium-term, and in all these states their dependence on balancing their budgets on $100 a barrel. $120 in iran and in venezuela, they'll have massive shortfalls. >> let's look closer at russia for just second. does this spell of lower prices mean that the people on the other side of the table have a little more bargaining power, as

both western europe and placing like the ukraine try to broker deals for long-term contracts for natural gas, let's say, or liquid crude? >> well, in the short-term i'm not sure it prison a great deal of leverage. certainly it may stop russia from monkeying around with the gas supply this winter as they have done previously. they shut off the gas to ukraine in 2006 and 2009, though may an disincentive that prevents them from doing this again this winter. but russia has large reserves they've built up over the last decade and they can afford to weather a couple of years, two, three, maybe four years of quite low oil prices before they start to see budget ary problems. in the long term it may make russia more assertive. it may mean that the regime in the kremlin is more worried about markets, about finding

people to buy their oil than they are about other issues like ukraine, but in the short term i don't think it helps the u.s. and it's allies too much. >> there are big producers who are still quite poor like angola and nigeria whose national treasuries depend heavily on oil revenue. what are they looking at in years out. nigeria has a sweet crude that has stood them in good stead, but still they need to sell a lot of it to keep the economy on even keel. >> they do, indeed. nigeria, i think s extremely vulnerable, angola's production is going up. keep in mind at 150,000-barrels of oil in nigeria disappears in financial coffers of various individuals. angola will certainly be hurt, but another group of countries

that is interesting to note are the importers, japan has been hit hard importing fossil fuels in the wake of the nuclear tragedy of fukushima. this will also help importing countries l & g. >> liquified natural gas. >> that's right. >> excuse me, but newly emerging countries like australia, that's already a very high-cost l & g producer when it enters the market, they're going to be hit hard, and some of these projects will be called into question, which in the long term may effect the volume of l and g in the market. >> are there best cases or worst cases we should be looking at over the next year or two? goldman sachs with $70 a barrel all through next year.

>> i said one of the things you never do on a show is name a price for oil. it's the hardest thing to predict. i would say lower. >> lower than $70? >> yes. >> with all the accompanying bad possibilities that that would bring? >> that's true. a country like iran is sunk either way because of all the issues we've been mentioning here. but russia is a tricky case. you know, he has--putin has enough reserves, again, to weather him through the storm, but--but he does not have that much. he's not like saudi arabia that can survive at lower ends. >> thank you all for being with us today. that brings us to the end of this edition of "inside story." thanks for being with us. get off that gas pedal a little bit. in washington, i'm ray suarez.

♪ joining the fight against isil. the first peshmerga fighters head to the besieged syrian town of kobani. ♪ hello, i'm martine dennis in doha. also to come on the program, enforced migration, egypt displaces thousands to create a large buffer zone along the border with gaza. bangladesh war crime charges, the leader of the largest party is sentenced to