When the world gets closer.

We help you see farther.

Sign up to our expressly international daily newsletter.

CLARIN

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

-Analysis-

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.

You've reached your limit of free articles.

To read the full story, start your free trial today.

Get unlimited access. Cancel anytime.

Exclusive coverage from the world's top sources, in English for the first time.

Insights from the widest range of perspectives, languages and countries.

Geopolitics

How Ukraine Keeps Getting The West To Flip On Arms Supplies

The open debate on weapon deliveries to Ukraine is highly unusual, but Kyiv has figured out how to use the public moral suasion — and patience — to repeatedly shift the question in its favor. But will it work now for fighter jets?

Photo of a sunset over the USS Nimitz with a man guiding fighter jets ready for takeoff

U.S fighter jets ready for takeoff on the USS Nimitz

Pierre Haski

-Analysis-

PARIS — In what other war have arms deliveries been negotiated so openly in the public sphere?

On Monday, a journalist asked Joe Biden if he plans on supplying F-16 fighter jets to Ukraine. He answered “No”. A few hours later, the same question was asked to Emmanuel Macron, about French fighter jets. Macron did not rule it out.

Stay up-to-date with the latest on the Russia-Ukraine war, with our exclusive international coverage.

Sign up to our free daily newsletter.

Visiting Paris on Tuesday, Ukrainian Defense Minister Oleksïï Reznikov recalled that a year ago, the United States had refused him ground-air Stinger missiles deliveries. Eleven months later, Washington is delivering heavy tanks, in addition to everything else. The 'no' of yesterday is the green light of tomorrow: this is the lesson that the very pragmatic minister seemed to learn.

Keep reading...Show less

You've reached your limit of free articles.

To read the full story, start your free trial today.

Get unlimited access. Cancel anytime.

Exclusive coverage from the world's top sources, in English for the first time.

Insights from the widest range of perspectives, languages and countries.

The latest