One collateral casualty of the coronavirus outbreak appears to be the price of oil, along with economies and regimes dependent on the commodity. As at the time of writing, oil is trading down 30% for the year as slumping global demand starts to eat into forward expectations. Under this pressure, and/or for other reasons, talk is widespread of the OPEC+ regime breaking apart following Russia’s decision on March 6 to stop cutting oil production, which was swiftly followed by Saudi Arabia.
Some commentators linked the Russian move to President Vladimir Putin’s anger at how high oil prices had helped the US shale industry, but the geopolitical implications could spin far beyond that.
Ali Khedery, chief executive officer of US-based strategy firm Dragoman Ventures, tweeted: “Huge geopolitical implications...Catastrophic for failed/failing petro-kleptocracies Iraq, Iran, etc – may prove existential 1-2 punch when paired with COVID19.” That would certainly be an interesting outcome, especially because Saudi Arabia and Russia probably also belong on that list.
The stage was already set for some kind of change with previously agreed OPEC+ production cuts expiring at the end of March. Pundits are already talking of Saudi Arabia and other major players gearing up to increase production – an almost suicidally counter-intuitive move on top of the expected demand slump.
After oil prices approached highs of US$80 a barrel in 2018, some commentators are now talking of potential falls to as low as $20. Normally, that would be a potential adrenaline shot for the wider global economy, not least consumer demand, but with no sign of an end to the coronavirus outbreak, any positive impact appears likely to be long delayed.
Meanwhile, Crown Prince Mohammed bin Salman, Saudi Arabia’s de facto ruler, has apparently initiated a mass purge of potential rivals or dissenters within government, including royal family members and ministerial officials. What price the stabilising effect of the Saudi Aramco listing now? The expected price war has already driven Aramco’s stock down below its initial public offering price, with signs that the Crown Prince’s economic lynchpin policy appears in danger of becoming a broken reed. No wonder he appears to be locking up every potential source of dissent. Saudi Arabia seems to be in the throes of instability of every kind.
It’s a chance for investors once again to try to learn the lesson they keep forgetting: don’t waste good money on trying to shore up bad politics. It’ll always come back to bite you.
You’d also think that the kind of geopolitical lesson taught by this kind of crisis would help wean even conservative Americans off their climate change denialism and addiction to oil. But I guess stupidities of a feather stick together.