he was part of the france teams that won the '98 world cup, and the 2000 european championships and he is france's all-time leading scorer. take a look at the website, you can get all of the news and sport there, aljazeera.com. that's aljazeera.com. pretty good when you were filling up your tank over the weekend with gas at prices you haven't seen since the country emerged from the recession. is this a silver cloud with a dark lining? it's "inside story." ♪ ♪ hello, i am ray suarez. a barrel of

oil, 42-gallons of crude now costs about $57. just a couple of months ago, that same 42-gallons cost $106. if you drive a lot, it was like getting a raise. if you are corporate or national income is based on how much you can get for that barrel, you just got a cut in pay. close to 50%. what the tumbling price of crude does in an inter naturally connected world economy where christmas shopping americans iranian generals, venezuelan bureaucrats and chinese factory owners all are feeling the effects of cheap oil. oil prices have been falling at record speeds this year. to the delight of many american drivers. >> i am glad it keeps going down, like we got enough bills and insurance and everything else to take care of. gas should be the least of our worries. >> in the last six months, oil prices have dropped 45%. in october, when the price of oil was down to around $80 a

barrel, we asked our guest, professor of international business how low oil could go before we should start to worry? are there best cases or worst cases that we should be looking at over the next year and two? goldman sachs says $70 a barrel all year. >> we were talking earlier before the show and i said one of the thing 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. >> on friday oil prices sank to $65 a barrel. the lowest since 2009. it's about the law of supply and demands. there is too much supply, and prices have continued to fall since saudi arabia convinced opec to keep pumping at current levels rather than cutting back production. >> we have a very decent price, no price decline, that does not mean that we should really, you

know, rush and do something. we have to wait and see how the market will settle. >> dropping prices undercut iran and russia, both rely on higher oil prices to fund government. russian president vladimir putin is playing down the opec decision as no big deal. >> translator: for us, from the very beginning, it was clear that once opec did not announce a reduction in production, the prices would react to it. that they would be slightly lower. >> but it's estimated russia needs the price of oil to hover around $100 a barrel to pay its bills. add the bite of sanctions, and russians are hurting. >> translator: this is all hit our pockets, of course. because everyone has some sort of debt. mortgage and all that. i think it will have a strong impact on the ordinary citizens. >> iran needs prices at $100 a barrel too. its currency has dropped by nearly 6% against the dollar since opec announced it won't be cutting production.

iran's president called the move treacherous. >> translator: the islamic republic of iran and people of the region will not forget such conspiracies. or, in other words, stretch are yous against the interests of the muslim world. it will remain in the minds of the people and they will react to it. >> opec's decision could be seen as a geopolitical jab at two nations supporting syria's president, bashar al-assad. saudi arabia, along with other gulf nations like qatar, are supporters of syrian opposition in the country's civil war. and, remember, it's not just middle east wells creating a world market a wash in oil, north american shale is also feeding the glove. u.s. production is the highest in three decades as the world economy slows, demand falls, and downward price pressure continues. for now, the world's pain is your gain at the pump. ♪ ♪

are you falling in love with cheap oil? over the next 12 months it could pump a thousand bucks in to your family budget. and give vladimir putin's russia a haircut. what could possibly go wrong? we'll take a look at the joys and threats of really cheap oil moving forward. joining me for that conversation professor of international finance and business at the george washington university. international oil consultant. and amy myers-jaffe, executive director of energy and sustainability at the university california davis. since you guessed below 70, you got to come back professor. here we are, today the price in the new york mercantile exchange bounced at $55..87 a barrel. what is driving it further if people are entering the marketplace, and trying to guess at a market-clearing price, what forces it lower and

lower? >> well, in the short run it's the saudis. they have sim meal had enough of u.s. expansion and it's their venue to curtail it. there are many different financial markets for oil exporters and those that have taken out loans that have to be paid back sooner or later are panicking and driving the price even further down, that's parts of it. >> is that why no one could bear it turn down the taps? why they have to keep pumping even when the commodity itself is getting cheaper and cheaper? >> well, lets first agree that opec has taken the wrong decision by not cutting its production by at least 2 million-barrel a day, to absorb the glut in the market. had they taken that decision, russia would have joined them by cutting half a million barrel a

day and mexico would have joined them by cutting 300,000-barrels a day. they would have been able, with the total of 2.8 million-barrels a day cut, to absorb the glut in the market. taken. it is not too late for opec to reverse its decision and to take a decision to cut the -- their production by a minimum and i say a minimum 2 million-barrels because they have been over producing by that amount. if they take that decision i think that will stabilize the oil price, otherwise, i am afraid the oil price could even reach $50 a barrel. although that might be good enough for drivers and for transport for a short while, it will be of dire consequences to the global economy as a

whole. >> amy myers-geoff jaffe you jut heard him talk about how it would be in the interest of the country to his cut production, but it harder than we sometimes realize for them to do it. ecuador is in not great financial shape. nigeria constantly battling physician calling problems inside the country. venezuela, also in very perilous economic state s a hard decision to a country to make to say we are just going to defer this income for now and hopefully make it back down the road? >> well, i sort of disagree with him, i think that what is not well understood throughout opec is just how resilient the u.s. production surge really is. so in my opinion, had opec made some production cuts overtime all of that would have done is encourage more and more drilling in the united states and other parts of north

america. the shale boom is becoming more and more productive, companies are able to produce more oil from the same well, using new and better processes. more sand, different kind of fracking fluids and so it will be very hard for opec to really compete against and shut in the u.s. production. and the market, you know, the experts and traders in the market understand that. and that is why prices keep falling. because people keep revising their ideas for how low a price would cause the low down in the u.s. boom. people are expecting the increase for january to be the same as december in the united states. and i think it would be pretty hard for opec to knockout that production and since everybody in opec has financial pressures, you know, what is the points of cutting production if it means that you are just going to have prices stay low and the united states is going to get more of the market share.

i think that opec is really painted itself in a corner by holding prices so high for so long and creating this drag on the global economy that it's going to be very hard for the organization to dig itself out. >> but conversely, and you heard a model where if the price had gone up it would have encouraged more american production. is it discouraging more american production when the price comes down? >> absolutely right. it's changed the financial equation for oil extraction. and in this business of oil, it's very simple, when oil prices go this low, right, it drives the weakest out of the market. and then the middle group, puts everything on hold. what we call mothball the production. and saudi arabia really is the only country out there that can withstand this. they have $7 billion in reserves. they can handle $55 a barrel for quite sometime. >> well, why the gloom? and i am not sure who i should best turn this one to, because everybody is agreeing to a

degree on why it's happening and what's happening. but why the gloom from economists who see bad portents in these market trends. amy myers jaffe. >> well, you know, you do have this risk in the markets. back to the global banking sector, i think that people are pretty much assuming that venezuela might be one of the first shoes to drop in terms of having difficulty of paying back its debt. of course they owe a lot of the debt to china and maybe the chinese can afford to write off that debt. but, you know, you have a lot of other small oil-producing countries that have similar financial pressures. but, you know, in balance, i guess i have to sort of disagree when you look around the world i mean, there are a lot of poorer countries in southeast asia and africa that are helped when the fuel costses comes down, the pressure on their budgets ar isa

leave 80e aalleviate so it's a mixed back. and the interesting thing that we haven't discussed is one of the things that really threw the market in nba to a tailspin was the thought that the chinese market would slow down, china traditionally their construction boom and economic activity has been a big driver to commodity price as cross the board but especially to oil. so the question is -- >> let me go to -- the question is do lower oil prices still lay more growth or not. >> go ahead, sir. >> may i comment on this? >> please. >> the global economy cannot reconcile itself with such low prices. although contemporary to common wisdom that very low oil price is good for the global economy, i don't believe for one minute that is the case. because low oil

prices damage a global investment in many fields, including oil and energy. second, it also undermines the u.s. shale oil production. and third, it damages very much the global oil industry itself. we have seen that the top seven oil majors are already selling many of their production assets and reducing their investment. this in two years time will translate in to lower share of their production vis-a-vis the global production, oil production. this means that such a reduction on their share will put a very solid floor under the oil prices and eventually will push the oil prices up. and, of course, we have also the

damage to the gulf, arab gulf economies and iran and russia when you put all of this combination together, it is damaging for the global economy and believe me, low oil prices plant the seeds for future crisis in the next two years with prices hitting more than 100 to $150 a barrel. we'll be back with more "inside story" after a short break. when we return, the knock on effects of cheap oil. when oil fell below 70 bucks a barrel, stock markets and currencies began to sag, why did that happen? aren't there plenty of winners in industry too? stay with us.

you are watching "inside story" on al jazerra america. i am ray suarez. the plastic packaging for a new piece of consumer electronics, a chemical used to make phosphates

for agricultural fertilizer being coke for cement production, commercial printing inks, truck tires, crude oil by-products end up in obvious and not so obvious places. how come world stack markets took recent price signals from the oil markets as much bad news. and we just had am i myer amy myers jae talk about not under estimating the winners. and you talking about how there are a lot of losers too. where did you come down? >> i think we have been fed for a long time that we need high oil prices for the global economy to be stable. and i don't believe that. we have to understand one thing, which is mentioned earlier, is that oil is driven in the long-term by growth. plain and simple, the price will reconcile with the growth rate and we have seen slow downs, the chinese have overstocked on raw material and oil. europe is flat in its growth. we are crawling out of this global economy. i think over the next four or

five years you'll see oil drop further probably $55 ebber and sometime. there is nothing wrong with it. it's actually quite good for economies. >> amy myers jaffe, i think a lot of people at home don't realize how much oil is embedded in the prices of the things that they buy. whether it's fuel that gets a tanker across an ocean to bring them things for their big box store or drives the cost of running farm equipment that eventually gets them wheat-did he strived and soybean-derived products in their grocery store. oil is sort of a cornerstone commodity, isn't it? >> it very much is a cornerstone commodity. and i think that we'll have a ripple effect across the

>> -- and all of our european allies. and in ukraine, the international community continues to stand up for the principle that a nation has the right to determine its own future, that no matter how powerful and aggressive its neighbor, it's border should be sovereign. obviously there is no shortage of challenges, and i have only scratched the surface. there is of course, libya, and yemen, and afghanistan, and you can run a longer list, yes, and we are engaged in all of those places, trying to find a better path forward. but even as we looked down this difficult road that's before us and consider the complicated

choices that we face, we simply cannot lose sight of the fact that that hard road leads to a better place. i'm convinced of that. the united states recognizes the deeply felt aspiration for peace, shared by the vast majority of israelis and palestinians, and we will continue to work with our friends and partners to find a path to the goal that we all share for a more peaceful and stable region, so with that i would be happy to take some questions and -- i don't know who is up. >> yep, our first -- is it on. our first question is from nicole of bloomberg. >> reporter: thanks for giving us this time, mr. secretary. in the past the u.s. has simply blocked resolution at the u.n. that it feels threaten or undermine israel, this time you

have made this trip to europe to discuss various proposals with your counterparts. can you tell us what has changed that has led you to do this, and mindful of your concern about discussing details about resolutions, could you tell us what the u.s. would like to see or would need to see in the resolution to support it? and finally, given the challenges that the u.s. has faced in trying to broker a mideast peace deal over these many years, it is time for the process to become more of a multi-lateral affair? >> it has always been a multi-lateral affair, but the united states clearly has a unique role to play as a result of our long-time friendship and relationship with israel, and the role we have played historically with respect to

camp david, ozwell, and so forth. in the end this has to be decided by the parties. the parties have to want this. and the parties have to make key decisions that can lead to the resolution. now coming back to the first part of the questions, right now, we're -- what we're trying to do is have a constructive conversation with everybody to create the climate, the atmosphere, the political space, if you will, to be able to go back to negotiations and resolve this politically. now clearly, in the beginning of an election and the middle of an election, it's very difficult and complicated, because we believe very deeply that nobody

should somehow interfere in the course of the election, and we want to find the most constructive way of doing something that will not have unintended consequences, but also can stem the violence. it's a particularly sensitive moment, because we understand the frustrations of the palestinians. we understand the frustrations of -- you know, the -- the palestinian authority and president abbas, and those pushing hard because they don't see another course at this moment. so the key is to try to find out whether or not there are other options, other ways, other courses -- >> so you are listening to the u.s. secretary of state john kerry speaking at a live press conference in london there. i'm shiulie ghosh on al jazeera. he started off by condemning what he called the acts of

terror in pakistan and australia. and is now talking about the situation between israel and the palestinians, saying that it is time to lower the tensions between israelis and palestinians and that the hopes for peace are shared by a vast majority of israelis and palestinians. let's bring in lawrence lee who has been listening to john kerry, and lawrence, it's interesting. the first question that was posed to john kerry was on the issue of the u.s. always blocking vetoes at the security council resolutions in support of israel, and asking him what was different this time, and he seemed very much to be explaining that what he is after is to try to get a consensus of opinion. >> yeah, that's right. he said from the started he didn't want to talk about resolutions that hadn't yet been tabled, but then more or less gave every indication short of saying that they were going to

veto it, that they would veto it on the grounds that he didn't want to be locked into a timetable. the palestinians, remember, say they are so fed up with the peace process going nowhere, that they want a final resolutioning ending the occupation by november 2016. the israelis hate that, and they have already said to john kerry that they won't allow it. and in terms that's what john kerry said too. that they don't want to be locked into something, that in the end even if you think the americas always support the israelis, and always use the veto, which they do, clearly they -- don't want a situation where there is even worse violence. but the palestinians will say, look, the europeans and americans have been saying this for the last ten years and it

has gotten us absolutely nowhere. so you have the palestinians and several european states now who support state hood, and that has given the palestinians confidence saying let's go for a final goal. [overlapping speakers] >> sorry to interrupt you. he is actually going to meet with the palestinians and with the arab league. >> yeah, he has met with some already. he is meeting with [ inaudible ] today. and what he will say is we want you not to use your veto. i think at the moment it's looking very much like the americans will veto it, though. >> okay. lawrence we'll talk more on this later on. john kerry speaking in london for that, and there will be more on that issue after the break. bye for now.

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>> announcer: this is al jazeera. ♪ hello there, welcome to the news hour, live from doha, i'm shiulie ghosh. our top stories. taliban attack an army-run school in pakistan. at least 130 people are dead, most children. >> reporter: there were six or seven attackers and they were turning the classrooms and shooting students one by one. hundreds of billions of dollars are wiped off of the value of russian's economy as the ruble crashes to a new low,