Tumbling Oil Prices Couldn't Have Come At A Worse Time

​The OPEC-Russia oil spat that has provoked stock-market panic may prove the last straw for a world economy on the verge of another recession.

Crude oil tanker in Shandong, China last year
Crude oil tanker in Shandong, China last year
Marcelo Cantelmi


The black Monday that shook global stock markets reveals a situation of economic instability that actually began a while back, fueled by increased aversion to risk, multiplication of negative rates and corporations absorbing fears of another big recession. It arose with the winds of protectionist threats heard in the U.S. trade war with China and those swirling around Brexit.

But the COVID-19 epidemic that suddenly came crashing through the world, riding roughshod over social, economic or political barriers, has made its geometry worse. At such a sensitive juncture, an oil spat between Russia and Saudi Arabia, which might have caused minor harm at other times, pushed markets over the brink on Monday. Prices fell like they had not since the débacle of 2008 and downfall of Lehman Brothers. The stock markets on Wall Street and in Sao Paulo suspended their sessions before the precipice.

Behind this was the unfortunate disagreement between Moscow and Riyadh that fractured OPEC, the Organization of Petroleum Exporting Countries. The Saudi kingdom wanted a cut in crude production to sustain prices already hit by coronavirus. Russia objected, prompting Riyadh to submit the matter to its own theory of chaos, directed at its rival but indifferent to its planetary consequences.

OPEC had proposed that Russia cut its production to 1.5 million barrels a day, thus in theory adjusting output to reduced demand. The Kremlin's refusal was in line with its own, strategic policy of competing directly with Riyadh. The kingdom reacted with a counterpunch of ramped up production meant to twist Putin's arm, causing crude prices to tank. The barrel of Brent, the European benchmark crude, has fallen from its average January price of $66 to around $36, and the U.S. benchmark crude, West Texas Intermediate, was also trading at around $34.

The fight has come at the worst time, just when the novel coronavirus COVID-19 is depressing the global economy — and the effect is clear. If the economy slows further as is happening, demand for oil will fall as production and trade decline. That is happening in China, which has registered a tremendous fall in exports in the first two months of the year. The spat was precisely the spark to avoid in a world that is anything but stable right now.

In normal times, falling oil prices would be good news for a global economy in need of a fillip.

There are other considerations. In normal times, falling oil prices would be good news for a global economy in need of a fillip. Cutting costs stimulates production. But presently with competing tensions, it has become an aggravating factor as markets have shown, and may trigger a wave of bankruptcies and wipeouts of wealth .

This combination is producing a scenario similar to or worse than the conditions that triggered the crisis of 12 years ago. The background is a time bomb of vast amounts of debt amassed in the northern half of the world since 2008. The Institute of International Finance calculates the ratio of global debt to GDP has reached an extraordinary 322%, or a packet of obligations worth around $235 trillion. To get a sense of its size, the U.S. GDP is about $20 trillion and China's about $4 trillion less.

COVID-19 and other factors are pushing the system of global debt accumulation toward a critical point, which may provoke another global recession. Its social and political effects would be enormous. The pandemic is destroying people's trust in their governments, and reviving demands for the public health systems that have faced relentless cutbacks on all continents in recent years. And then of course, in countries like the United States, public healthcare is virtually absent.

For the coming weeks, Worldcrunch will be delivering daily updates on the coronavirus global pandemic. Our network of multilingual journalists are busy finding out what's being reported locally — everywhere — to provide as clear a picture as possible of what it means for all of us at home, around the world. To receive the daily brief in your inbox, sign up here.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!

In Argentina, A Visit To World's Highest Solar Energy Park

With loans and solar panels from China, the massive solar park has been opened a year and is already powering the surrounding areas. Now the Chinese supplier is pushing for an expansion.

960,000 solar panels have been installed at the Cauchari park

Silvia Naishtat

CAUCHARI — Driving across the border with Chile into the northwest Argentine department of Susques, you may spot what looks like a black mass in the distance. Arriving at a 4,000-meter altitude in the municipality of Cauchari, what comes into view instead is an assembly of 960,000 solar panels. It is the world's highest photovoltaic (PV) park, which is also the second biggest solar energy facility in Latin America, after Mexico's Aguascalientes plant.

Spread over 800 hectares in an arid landscape, the Cauchari park has been operating for a year, and has so far turned sunshine into 315 megawatts of electricity, enough to power the local provincial capital of Jujuy through the national grid.

It has also generated some $50 million for the province, which Governor Gerardo Morales has allocated to building 239 schools.

Abundant sunshine, low temperatures

The physicist Martín Albornoz says Cauchari, which means "link to the sun," is exposed to the best solar radiation anywhere. The area has 260 days of sunshine, with no smog and relatively low temperatures, which helps keep the panels in optimal conditions.

Its construction began with a loan of more than $331 million from China's Eximbank, which allowed the purchase of panels made in Shanghai. They arrived in Buenos Aires in 2,500 containers and were later trucked a considerable distance to the site in Cauchari . This was a titanic project that required 1,200 builders and 10-ton cranes, but will save some 780,000 tons of CO2 emissions a year.

It is now run by 60 technicians. Its panels, with a 25-year guarantee, follow the sun's path and are cleaned twice a year. The plant is expected to have a service life of 40 years. Its choice of location was based on power lines traced in the 1990s to export power to Chile, now fed by the park.

Chinese engineers working in an office at the Cauchari park


Chinese want to expand

The plant belongs to the public-sector firm Jemse (Jujuy Energía y Minería), created in 2011 by the province's then governor Eduardo Fellner. Jemse's president, Felipe Albornoz, says that once Chinese credits are repaid in 20 years, Cauchari will earn the province $600 million.

The Argentine Energy ministry must now decide on the park's proposed expansion. The Chinese would pay in $200 million, which will help install 400,000 additional panels and generate enough power for the entire province of Jujuy.

The park's CEO, Guillermo Hoerth, observes that state policies are key to turning Jujuy into a green province. "We must change the production model. The world is rapidly cutting fossil fuel emissions. This is a great opportunity," Hoerth says.

The province's energy chief, Mario Pizarro, says in turn that Susques and three other provincial districts are already self-sufficient with clean energy, and three other districts would soon follow.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!