Will lower oil prices cause social unrest and terrorism to rise? What about the impact to global capital markets?

Countries have a tendency to increase their government spending when times are good.

Governments would be best served by undertaking projects that have a short or defined time span / implementation. These would be capital spend projects like roads, bridges, power plants, water treatment centers and other "infrastructure projects." This way, when revenue sources fall they can cut their spending to get their budgets balanced and not run protracted deficits. Where governments get into trouble is when they increase spending notably by increasing social security benefits or other "welfare" type of projects that generate year-after-year (continual spending). When the revenue source declines the governments either have to run a deficit, cut the spending to the chagrin of those who become dependent on the services (who vote as well) or increase taxes. At some point the American taxpayer/consumer/economy is in for a BIG awakening due to continually rising national deficits and a RIDICULOUS national debt.

Argentina's economy is in trouble right now for this very reason. They spend too much each year on continual spending and can't pay back their loans.

In the gulf region (Saudi Arabia, UAE, Qatar, Kuwait, Bahrain and Oman) many governments are at risk of running deficits in 2009 due to a falling price of oil. Oil was $140 + a barrel in July 2008 and has fallen as low as the high 60s in recent days.

The rgemonitor ( http://www.rgemonitor.com ) ie estimating that the lowest breakeven oil price that would bring 2008-2009 budgets into balance "is in Saudi Arabia ($30/bbl), followed by UAE ($40/bbl) and Qatar ($55/bbl). Therefore, that means that Saudi Arabia can maintain the current level of budget spending even if the oil price were to fall to $30/bbl." However, this year Saudi Arabia is undertaking many capital projects and, as a result, they need oil to stay above $49/barrel in 2009 to avoid running a deficit. Apparently Merrill Lynch is estimating the average breakeven for GCC is $50/bbl. Bahrain and Oman are at risk of running 2009 deficit if the oil price remains around $70/barrel (IMF).

Another thought: If Saudi Arabia runs a deficit what will the impact be to the global capital markets? The Far East and Gulf Regions have been the biggest investors in the last few years, running large surpluses each year. Who will then have $$$ to invest in re-capitalizing banks or buying U.S. government paper? The demand for U.S. paper would decline in such an event and who would finance our deficits? This would lead to excess paper supply and the U.S. dollar falling in value. This, in turn, could cause inflationary pressures to come back.

Another thought (v2): Venezuelan President Hugo Chavez said Wednesday that his nation could withstand the global financial crisis even if the oil price falls to 55 U.S. dollars a barrel, Venezuela's national TV channel reported. On Tuesday, Economy and Finance Minister Ali Rodriguez Araque presented to lawmakers the Venezuelan budget for 2009, which was formulated based on an average oil price of 60 dollars per barrel. U.S. policymakers have to love this as falling oil will cause more social unrest in Venenzuala and Chavez has less free $$$ to hand out to other Latin American countries to support his rhetoric against the U.S.

Dan Ross
http://www.BetterBizIdeas.com