John Reilly | MarketWatch

The crash in the price of oil — from $108 a barrel in June 2014 to below $27 earlier this year — has rattled the stock market, triggered layoffs across the energy sector, and plunged many oil producing countries into crisis.

Oil has since rebounded significantly from its lows, to above $40 a barrel, but the price plunge since 2014 has put much pressure on oil companies. Reports have pointed to an increase in debt among oil producers, raising the specter of default on bankruptcy and default on debt, with follow-on effects beyond oil producers.

The upheaval also has sparked fears that oil’s troubles will spread across the globe, echoing the crash in U.S. housing markets that pushed the world economy to the brink of collapse in 2008. Yet despite the woes oil is experiencing, it is unlikely that the repercussions will trigger another global financial crisis.

Looking at the numbers, the mortgage-debt crisis dwarfs what is currently happening in oil. According to a report in the Financial Times, the global oil and gas industry’s debts rose to $3 trillion from $1.1 trillion between 2006 and 2014. Compare that to the $10 trillion of housing debt weighing on Americans in 2008.

Aside from the numbers, the impact will be different because of the nature of the oil industry and the role oil plays in the world economy. Boom and bust have been features of the oil business for many years. Companies that have been around for a while understand this, and have learned to adapt. Responding to earlier crises, they made significant cuts and improved efficiency. Because they run lean operations, these companies are better prepared to weather downturns. Also, the major players in the oil industry are not highly leveraged, and thus we have not seen anything like the cascade of failures among lenders and suppliers that made the housing bust so damaging.

It is also important to note that the marginal cost of extracting oil from the ground is relatively low once the initial cost of developing a field is sunk. Even if prices are low, companies can continue to make money. It won’t be as much as they would make in good times, but the businesses can still generate revenue and profits. When oil companies cut back, they halt or delay investments in new fields, but their existing wells continue to produce.

Although some smaller or newer oil companies have been forced out of business by the price collapse, the larger, established players are unlikely candidates for bankruptcy. What tends to happen in the oil business is consolidation, which has been a feature of the industry for nearly two decades: look at Exxon XOM, +0.71% and Mobil; Chevron CVX, +0.39% and Texaco; BP BP, -1.46% and Amoco, and other mergers that occurred in the 1990s and early 2000s — another time when oil prices were extremely low.

That round of mergers and acquisitions reduced the number of companies considerably, and so room for further consolidation may be limited. Also, many of the remaining companies are state-owned or state-controlled and thus not candidates for acquisition or merger unless governments that owned them decided to privatize the assets — an unlikely scenario. But smaller operators with potentially valuable mineral rights will become candidates for acquisition by cash-rich larger companies.

When weighing the fallout from the oil price collapse, it is important to remember that whatever direction oil prices move, there will be winners and losers. While today the oil industry struggles, other industries, including transportation and manufacturing, are enjoying the benefits of low-cost oil. The fortunes of regions also rise and fall with the price of oil. When the price is high, Texas booms and New England struggles. Falling prices bring the reverse.

Perhaps the most serious consequence of today’s cheap oil is the damage done to governments that rely heavily on tax revenue from oil production. Many of the big oil-producing countries depend heavily on oil revenue to deliver basic services. With the collapse in prices, governments have to cut support for everything from medical care to housing to road repair. Tight budgets, in turn, can fuel political unrest, which may destabilize governments.

The damage to governments is easy to see in Venezuela, Nigeria, and Russia. But it also is apparent in wealthy countries such as Saudi Arabia, which has had to trim its domestic budget and pull back on investment outside of the country. Foreign nationals who traditionally have made up a large part of the Saudi work force may find less opportunity there, which creates a spillover effect in their home countries.

But for most of the world, assessing the effects of the oil price collapse is a process of calculating the many pluses and minuses. Oil industry workers may have much lighter paychecks these days, but consumers have a bit more in their wallets after filling the gas tank.

John Reilly is a senior lecturer at the MIT Sloan School of Management and co-director of the MIT Joint Program on the Science and Policy of Global Change, Center for Energy and Environmental Policy Research.

Photo: Detroit oil refinery (Photo courtesy of Grangernite)