“When the price of oil was above $100, many of the less developed oil exporting OPEC members decided to capitalize on the high price and cash out by taking loans using the precious liquid as collateral … However, few oil exporters anticipated such an acute oil plunge in such as short time span, which resulted in the value of the collateral tumbling by 70%, and now find themselves have to repay the original loan by remitting as much as three times more oil!”
Here’s one of the dumber borrower schemes out there, and a bunch of clueless governments in oil producing countries are at the heart of it: borrow money and agree to pay back the equivalent amount in barrels of oil, not using the market value of oil at the time the deals are struck, but at the time the loans must be repaid. So loans incurred when oil was above $100 a barrel now must be repaid with oil that is only valued at $40-$50 a barrel, meaning debtors must repay 2 to 3 times the amount of oil they would have had oil prices stayed high. The Chinese, the creditor on the other side of these transactions, receive a lot more oil, but they’re running out of storage and refinery capacity. From Tyler Durden at zerohedge.com:
When the price of oil was above $100, many of the less developed oil…
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