Mohamed El-Erian says that Saudi Arabia won’t cut its pumping to counteract falling oil prices, for fear of losing market share. He says the normal textbook rules of supply and demand will apply:

Low prices will lead to the gradual shutdown of what are now unprofitable oil fields and alternative energy supplies, and they will discourage investment in new capacity.  At the same time, they will encourage higher demand for oil.

This will all happen, but it will take a while. In the meantime, as oil prices settle at significantly lower levels, economic behavior will change beyond the “one-off” impact.

As costs fall for manufacturing and a wide range of other activities affected by energy costs, and as consumers spend less on gas and more on other things, many oil-importing nations will see a rise in gross domestic product. And this higher economic activity is likely to boost investment in new plants, equipment and labor, financed by corporate cash sitting on the sidelines.

This is where I should say something smart about natural capital or climate change or innovation. Well, maybe I’m just tired tonight.