The daily news about falling oil prices is the beginning of a major shift in the global economy: the end of the “commodity supercycle”, the idea that the rise of emerging markets led by China would continue to drive up prices for oil and other commodities, from copper to corn. Its end spells trouble for the many companies and countries, such as Brazil and Russia, that have prospered in the past decade from the sale of raw materials to China. It also spells relief for commodity importing countries, from the US to Turkey.
The mania for oil bore striking similarities to the dotcom mania of the late 1990s. At the height of the dotcom bubble, tech stocks comprised 25 per cent of global markets. After the bust, commodity stocks – energy and materials – rose to replace tech stocks and, by the end of the last decade, accounted for 25 per cent of global markets too. The next shift comes none too soon.
Analysts attempting to justify irrational prices promoted both the dotcom and oil manias. Dotcom gurus explained astronomical prices for companies with no profits as the spawn of a digitally networked economy in which prices “want to be free” and profits would materialise somehow. The oil bulls build their forecasts on the assumption that the mass, rapid rise of the big emerging markets will continue for another decade or two. But their boom was unprecedented – almost freakishly unusual – and is now breaking up, with Brazil, Russia, India and China all slowing markedly.