Oil dropped by roughly 30% on March 9, following the surprise collapse of the OPEC+ market coordination agreement between Russia and Saudi Arabia on March 6.
Moscow rejected its partners’ request to cut oil production even more than it already has, which in turn prompted Riyadh to declare what many in the media described over the weekend as an oil price war.
The two energy titans are now battling for greater market share, but their rivalry could have some serious consequences for the world.
The global economy is already very fragile following U.S.’s trade war against China, which preceded the COVID-19 outbreak in China that temporarily reduced some of its economic output. This unexpected development raised speculation that the other larger economies in complex interdependent relationships with it would also see slower growth than normal, and some of them might even enter into a recession.
The Wall Street roller coaster of the past few weeks attests to the world’s fears.
Stock markets all across the world have reacted very negatively to the oil price crash, making some wonder whether another global economic crisis has begun as a result of the “perfect storm.”
It’s too early to say whether not that’s the case, but it should become clearer by the end of the week after international investors and government authorities have enough time to regain their composure, calmly assess what’s happening, then make the relevant decisions that will set everything along a certain trajectory.
The best case scenario is that the markets stabilise and quickly adjust to what might be the “new normal” of low oil prices for the foreseeable future.
Governments whose budgets are disproportionately dependent on oil exports will probably suffer the most during this time, though their economies could be cushioned from the more crippling consequences if they have enough reserves to rely upon, as Russia reportedly does.
Saudi Arabia, meanwhile, might have more difficulty in this respect, though its ultimate resilience remains to be seen.
The more vulnerable economies of Iran and Venezuela will probably bear the brunt of low oil prices the hardest, especially since they’re already being victimised by U.S.’s unilateral sanctions and its threats of so-called “secondary” ones against all who refuse to go along with its primary ones.
Considering that those two states are also geostrategically significant, any exacerbation of their ongoing economic crises as a result of the oil price crash could lead to unpredictable consequences that might reverberate across their regions.
Again, it’s too early to speculate on what form that could take other than to warn about the possible political and humanitarian ramifications, but these scenarios should be tracked real closely by all stakeholders to ensure that they don’t lead to civil or international conflicts.
As for the world’s more diversified economies, they might recall the lessons of the 2008 global recession and remember that the best solution to this possible emerging global economic crisis is a multilateral one.
With this in mind, the G20 could once again function as the primary platform for executing the best collective responses to the interconnected consequences of the oil price crash.
Furthermore, the importance of regional blocs such as the EU, the Russian-led Eurasian Economic Union and the SCO might naturally become more prominent as the world’s leading economies realise their responsibility to their immediate neighbours.
China’s world spanning Belt & Road Initiative could conceivably connect them all and complement the G20’s Role.
At times of widespread uncertainty such as these, the most important thing that everyone can do is remain as calm as is realistically possible. That’s understandably easier said than done for some countries, companies and individuals, but should nevertheless remain the objective.
The oil price crash has the potential to cause serious consequences for the global economy, but it will only worsen if everyone panics. It’s, therefore, the responsibility of all relevant stakeholders to remain calm and organise collective solutions as soon as possible.