27 Mar Corona, oil & the global economy in 2020
Corona, oil & the global economy in 2020
It’s strange to imagine that we’re only halfway through the third month of the year. So far we’ve had scares of a third world war, seen Australia battle incredible wildfires it had not seen before, witnessed widespread flooding around the globe, are experiencing the accelerating spread of the coronavirus worldwide, seen the UK formally exit the European Union, been saddened by terror attacks around the globe and to top it all, the world’s economy has taken a massive tumble following an (almost) unprecedented oil crisis.
And if you’re a South African you’ve witnessed all of this in sporadic darkness reminding you of the catastrophic turn of our State Owned Enterprises amid an economic recession.
Rand Rescue takes a look at the state of the world’s economy, what’s happening locally and abroad and possible outcomes and recourses. Bear in mind that though we made every effort to keep the information in this article as relevant and accurate as possible, matters are still unwinding and there will undoubtedly be more information we could not include at the time of posting.
Is it really that bad?
To be fair, the news of an economic recession in SA is not that much of a surprise. Though this recession had only been announced formally by Statistics SA earlier in March, all the numbers had pointed towards a massive contraction. Indeed, though the treasury had taken various steps to address South Africa’s economic decline in its budget speech, it may be a case of being too little too late.
The problem, of course, lies in the compound effect of all the various catastrophes which are impacting the global economy. For while SA had been looking to boost investment and international trade cooperation through radical policy changes, the world is simply too busy trying to stay afloat under the weight of its own crises to offer the helping hand we’d hoped for. And now each country has to fork out millions, if not billions, to pool into emergency pandemic services and boost the most affected industries.
The Rand has been seesawing like a wayward toddler in the last few weeks. While some analysts had thought the lower oil prices might be a positive outcome for South Africa, it has not presented us with the fiscal boost we’d hoped for, and there are, of course, various reasons for this.
The website Country Economy, which catalogues and updates more than 80 worldwide indices, shows that year to date (YTD), only 7 of the listed indices had shown positive growth as of 17 March 2020.
Corona crisis and the economy
Before we get to the oil debacle, let’s consider the impact of the coronavirus on the world’s economy. Overall, global stocks which had been affected by US-Iran unrest, Brexit, the Australian wildfires and other factors earlier this year, seemed to make a slow but steady comeback following China’s announcement that it had reached containment of the coronavirus in February 2020. But the news was a red herring.
In March, however, the world awoke to the realisation that the virus was not contained, and as the spread of the pandemic accelerated, so too did the selling of stocks as indices struggled to ‘correct’ as a last resort. Of course, though some indices like the Dow are theoretically easily manipulated, others can’t readily skew their numbers. And with such global action and reaction, manipulation has simply become impossible. Many pundits had also asked for calm and believed the pandemic to be quite manageable. But the numbers speak for themselves.
At what cost?
It is quite impossible to quantify the exact cost of all the losses suffered worldwide in the past few months. There are tools available for calculating losses on a minor scale, or for specific events, crises and industries, but the impact of this global crisis is too staggering and as we’ve no idea when we’ll see the end of it, many losses will only be calculable in hindsight.
Nevertheless, we’ve tried to give you some accurate predictions and numbers.
The cost of healthcare and crisis-management are of course some of the greatest expenses for those places most affected by the virus. Given the divergent health systems worldwide as well as the capacity for different governments to pump additional funding into the crisis there is no global standard.
In South Africa, Discovery Health has announced that the cost of private testing for the coronavirus will be levied at R1 400 per test, with these costs recovered from the member’s savings account should the test be negative.
In Italy, doctors on the frontlines have lamented the lack of resources, working overtime and now also the dire burden of having to choose which patients deserve critical care more than others as there aren’t enough staff or resources to treat everyone. And the knock-on effect is that these people who deliver crucial services in healthcare are also putting themselves at risk of infection. The countries who have been most hardest hit thus far have stated that it is the delay in preventative action which is having the greatest impact on their economies.
States are spending millions of dollars on the pandemic – through warning systems, testing apparatus, facilities, communication plans, paying overtime fees, assisting those in quarantine and also in catering to the deceased and their families.
In Iran, the impact of the coronavirus is now visible from space, with satellite images showing the mass graves which have been erected almost overnight.
To top it all, hysteria over the outbreak has led many individuals to stockpile crucial medical resources such as respirator masks and sanitation supplies. The result is a skyrocketing of prices as sly entrepreneurs are capitalising on this increased demand by pushing up prices.
In the USA, a man who had stockpiled 17 700 bottles of hand sanitiser and attempted to sell the products at exorbitant costs via Amazon has been ordered by the Tennessee attorney general’s office to distribute the supplies to te distribute the items at no cost, and they are under investigation for price gouging.
Pictures and video clips of people buying excess stock in panic are spreading like wildfire through social media, while the products being hoarded are unfortunately not ‘spreading’ at all. Sadly, it is the poorest of the poor and the most vulnerable who will be left without health supplies or foodstuffs as the panic buying continues. Though most governments and suppliers have already assured the public that they will not run out, and should not resort to such panicked buying, the public is not listening, and a perceived shortage of stock has now artificially induced shortages.
Bill Gates was among those who had warned what dire consequences the virus would have for Africa. As a continent we have some of the most vulnerable populations – those who do not have access to sanitation, who live in close quarters and cannot quarantine, and with widespread illnesses affecting their immune systems – including HIV/Aids, TB, malaria and so forth. Many households have but one breadwinner providing for several people – if they should become ill, the entire household will be impacted by a loss of income.
With the first cases of the virus reported in townships in South Africa on 16 March, it is inevitable that this thing will spread fast, and affect many. Indeed, the Southern Hemisphere had been spared the impact of the virus as it first toured the north, but the rejoice was short lived. The virus does not fare that well in warm weather, which means the changing seasons may see the north get some relief in the spread and incidence, while it travels south. But misinformation about the virus and temperature is rife. Scientists have already confirmed that part of the reason for the slow spread of the virus in warm climates is due to human behaviour. It fares and spreads better in cold climates due in part to more people being confined in buildings with air conditioning and central heating. As it hits areas with large numbers of people living and working together, we’re likely to see the spread proliferate.
The UK has thus far taken a far more relaxed stance on the crisis, with Boris Johnson ascribing to a ‘herd immunity’ strategy. The prime minister had stated that they would no longer track and trace the virus and not impose the same isolation measures as other countries. The strategy assumes that it is somehow best for the herd if people were infected during its ‘first peak’ which would mitigate spread by the ‘second peak’. In herd immunity it is believed that allowing infection to spread would boost the immunity of the overall herd. Virologists have warned that this is a very callous stance since:
- this underestimates the seriousness of the virus
- places vulnerable people at risk
- does not take into account that China and Japan had already recorded cases of reinfection after the initial recovery
- does not take into account that many people will never fully recover due to the lasting impact the virus has on respiratory health
Further outrage was voiced at a in infected Japanese citizen deliberately going ‘bar-hopping’ after finding out that he tested positive, a Malaysian mosque which held a mass prayer event to ‘curb’ the crisis which has already seen 77 confirmed cases of infection, and a Ms. Nevada (and county school district board trustee), who had capitalised on the pandemic by voicing extremist political views and stating that she refuses to self-distance.
The health sector is further impacted by the spreading of misinformation – such as the fact that the virus is a biological weapon. Virologists and biologists have made it clear why this could not be the case through logical reasoning and deduction: a virus is not controllable. No person or government would be able to dictate and control the spread and mutation of a virus, which makes viruses futile bio-weapons. Those who would hypothetically want to use such weapons would therefore be defenseless against its mutations.
If countries with ill intent have access to such weapons as hacking, atomic weapons which can be concentrated to an area, social media misinformation tools such as Russian bots used in the US presidential campaign or even submicrosecond electrical pulses which could cripple power supply, Occam’s razor principles dictate that a viral pandemic would be a truly nonsensical weapon comparatively and not serve the entity which would use it.
Travel & Tourism
The grounding of planes, closure of borders and cancellation of travel is having a massive impact on the tourism industry throughout the world. In some cases the cancellation is voluntary, but in many cases it’s simply beyond individuals or travel providers’ control.
China was the first country to completely close its borders for anything but non-essential and government-sanctioned crossing, followed by Italy. The world had acted swiftly with most countries restricting travellers from mainland China. President Trump had imposed a 30-day travel ban to and from European countries in the schengen area, though it is questionable that he’d excluded the United Kingdom from this list given that it provides an easy stopover for those who wish to travel to the USA via other countries. Israel imposed the same restrictions to European countries unless visitors can confirm a minimum 14-day quarantine before entry, and in the past week numerous countries have followed suit – including South Africa.
And those who continue working in the industry are suffering most. Two baggage handlers at one of the world’s busiest airports, Heathrow, had already tested positive for the virus at the beginning of March, followed by various passport control officers and staff at airports and on cruise ships the world over. Museums, resorts and important tourism spots across the world stand empty as people no longer visit them.
And yet there’s another problem rearing its ugly head. Understandably travel agents and businesses in tourism can’t quite afford to cancel their visitors’ plans unless it’s crucial. Yet conversely, visitors who’d already booked their travel cannot claim their expenses back through travel insurance for cancelling due to caution. Others are left stranded as flights are cancelled, without the financial means to remain where they are for the foreseeable future. Travel forums worldwide are abuzz with debates over these financial losses, with many travellers intent on getting their money’s worth even if it places them and others at risk.
In South Africa, travel agents and guides who often rely on commission fees or are paid per tour have now been told to remain home – without a way to make up this lost income.
The New Zealand Chinese Travel and Tourism Association had announced that they rely 100% on Chinese tourists, and with border closures this means that there is no income or work for people in the industry.
Many tour agents, hotels and airlines have already announced that they will refund or change bookings at no cost to their clients (including British Airways and Kulula.com), but these places are so inundated with calls and queries that people are simply not getting through to make these changes to their travel. Nevertheless, one should consider how this will impact our airlines and travel providers in the long run.
On 16 March Boeing’s stock had already dropped by 25% and the Centre for Asia Pacific Aviation had reported that most airlines across the globe may be bankrupt by the end of May if governments cannot find a way to forestall economic losses. It is calling for coordinated government strategy which does not merely focus on local economic action, but internationally as a collective and unified ‘governance’.
Imports & Exports
International trade in the form of imports and exports has also been dealt a major blow through the travel and border restrictions.
As an example, the period over the Chinese new year is one of the busiest for marine exports to China from countries like the USA, Australia and even South Africa.
One company in the USA cites historical data of a 1 000 crate per week average exports of live lobster to China over the first quarter of the year in previous years. The same company has managed a maximum of 120 crate exports per week since January and stated that they, along with several others in the industry, are considering filing for bankruptcy as the losses are simply too decisive for them to make a comeback.
China, meanwhile, had already registered a 17% drop in overall exports over the first two months of the year.
Indeed, locals in their own countries may be rejoicing at the price cuts related to export stock now distributed locally, but they should register at what lasting cost these discounts are obtained. For companies who bargain on foreign purchases are now compelled to sell their products and goods locally at a fraction of the cost. Those relying on third-party suppliers, temporary workers or contractors have also severed many of these business relationships amid the dwindling demand for products and produce.
The website Nepia.com lists the status of the world’s shipping companies and how the virus is impacting them.
Childcare & Education
We’ve witnessed how even minor upsets to the schooling calendar can affect the welfare of children. Whether it’s public holidays, looting, lack of water and sanitation, lack of school supplies or other factors – South Africa has seen the dire consequences of interruptions to schooling and these consequences have haunted us for years.
Imagining the impact of worldwide closure of educational institutions for weeks or even months on end is therefore quite vexing. The cost implications of closures include:
- delays in schooling will compel educational departments to either change their schedules for all activities throughout the year, or cram more work into shorter periods
- in poverty-stricken areas, children rely on feeding programmes for what is often their only meal per day, which will be inaccessible to them
- many schools worldwide don’t compensate educators if they aren’t giving classes, which means the educators may lose income
- many parents don’t have the resources and time to seek alternative childcare or stay at home to take care of their children – this could either see a loss of income or see to children being left in unsafe or unsupervised environments
According to UNESCO, 100 countries have started closing their schools thus far, and the trend is increasing with 85 countries thus far having announced total closure – affecting 776.7 million children. Schools and colleges have been shut down in China, South Korea, North Korea, the USA, UK, France, Germany, Italy, Iran, India, Israel, Australia, Greece, New Zealand, Qatar, Spain, Ireland, South Africa, Qatar, Albania, Japan, Mongolia, Saudi Arabia, Paraguay and many more.
Luckily some tech companies are stepping up to allow for digital schooling (including ClassDojo, Google Classroom and even Telkom in South Africa), but for developing countries these measures are simply unfeasible. People don’t have access to technology, nor the skill or resources to suddenly move towards digital classrooms.
Business & Industry
Businesses are affected by the spread of the virus in many ways – whether manufacturing, fintech, IT, processing, mining or other industries – the virus is affecting manpower, insurance costs, production speeds, investment, service delivery, marketing reach, client acquisition, retention and execution of projects. In addition to loss of demand for products and export limitations, we’ve seen stocks take a major nosedive even before the oil debacle started.
Even before the oil crisis had struck, S&P, the NASDAQ and Russel indices had recorded monthly and YTD losses exceeding 7% on average. China, although taking massive blows, had still garnered positive economic growth estimates among both emerging and first world markets. By closing on Monday 16 March, the stock losses had far exceeded initial estimates, with the stock market now having suffered its worst crash since 1987.
The Organisation for Economic Co-operation and Development (OECD) announced in their March report that they are downgrading their 2020 growth forecast for virtually all economies around the globe, with the worldwide growth forecast down from 2,9% to 2,4% but warned that it could possibly slip to 1,5%. Countries which are expected to take the biggest economic knocks are China and Japan, with downward forecast adjustments of 0,8% and 0,4% respectively.
Bloomberg Economics (BE) was far more stern, dropping their global forecast from 3,1% to 2,3% and China’s forecast by 1,2%. Although China is slowly firing up again with reduced incidences of coronavirus, BE believes the economy has essentially come to a complete halt and will struggle to recover. It will also struggle to recover its collective ego as much of the world believes the Chinese had deliberately underreported on the coronavirus. The biggest victim was the automobile industry which saw an 80% drop in sales YTD.
The world’s reliance on China as trade partner has once more been underscored as industries around the world struggle to meet their targets. This is most prominently felt in the tech industry, given that China is the largest manufacturer of component parts in tech in the world.
BE estimates that the coronavirus could possibly cost the global economy $2.7 trillion (R43,56 trillion) – which is equivalent to the entire GDP of the UK. Their analysis included various scenarios, with their third and last scenarios placing the world’s economic growth at 1,2% and 0% respectively.
Yet the USA is not far behind when it comes to economic trouble. As the largest global economy, the USA is feeling the pinch. For one thing, the Trump administration had disbanded the USA’s pandemic response team in 2018, essentially leaving the country without an executive branch responsible for coordinating response and action to a pandemic. He’d taken additional steps to cut costs by reducing the CDC’s global response funding by 80% and cutting their mandate for global infectious disease intervention down from 49 to 10 countries. And despite matters becoming increasingly volatile and critical in the past few weeks, Trump’s budget director had – on 12 March 2020 – stood by their initial plan to cut the CDC budget by a further 15% in 2021.
We’d raised concern for the US economy in previous posts, but let’s recap…
As a brief catchup from our previous analyses:
An alarming factor in the US economic ‘growth’ is the decisive boost at the expense of the deficit. Perhaps so alarming because even in our youth, the first rule taught for long-term saving is that you cannot maintain savings at the expense of debt, and that money gained through debt should not be viewed as a stable form of income. Then there’s the drastic economic stimuli (tax and interest rate cuts) which have not yielded the desired results. The additional funds freed up by Trump’s incentives had not been reappropriated for innovation or human capital development as he’d envisioned, but had instead been used by companies to buy back their own shares from stakeholders and, instead of settling debt through debt relief, buybacks had been widely achieved through incurring further debt as businesses saw lower interest as an opportunity to incur more debt. The trickle-down economy the presidency had hoped for has not occurred. Money pushed into the economy had also come at great expense for socio-economic, health, veteran and environmental incentives and programmes whose funding had been cut in favour of industrial initiatives. The state authority dealing with employment statistics had further stated that the presidency as well as journalists reporting on economic matters had misconstrued their statistics, as these people had perceived reduced numbers in job-seeking to indicate increased employment. The reduction, however, does not differentiate between falling out or gaining employment and numbers therefore also include people who have merely given up on working altogether.
The impact of the coronavirus on the US economy will be felt everywhere. Most sectors have already contracted, and on both S&P and the Dow had seen their words market surges since 1987 by mid-March – worse than the 2009 recession. Although making small strides forward by Friday 13 March 2020, the US stock market had lost the entire $11,5 Trillion it had gained under president Trump, as measured by the Russell 3000 index at the time. By March 16, stocks had tumbled even further, beyond all its gains it claimed to have gained under the Trump administration. And these numbers don’t even account for the deficit and programme cuts. Indeed, this is a complex problem and though much of it has to do with the coronavirus, the oil crisis we’ll get to later is the other major culprit in this drastic downturn. It is quite unfathomable that the US chose this very critical point in the world’s economy to once more take up their former spat with Iran by carrying out numerous air strikes on Iraqi facilities believed to be backed by Iran.
The New York Times reports that a telling factor in past crises was the presidents’ willingness to reach out and collaborate with foreign nations. And no, this is not a republican vs democrat trend – both Bush and Obama had applied this tactic to save their own and the global economies in the past. It is therefore not a matter of whether one is nationalistic, liberal, socialist, conservative or capitalist – it comes down to the individual leader and his or her skill in crisis-control.
South Africa is not faring any better. The fragile olive branch extended by Minister of Finance Tito Mboweni in April had all but evaporated in the wake of a global health crisis. The JSE which had made conservative strides forward at the end of 2019 as hopes at an Eskom overhaul warmed investor sentiments saw a sharp 5% decline in the all-share index following global angst over the coronavirus which slid by a further 12% on Monday 16 March. Gold, South Africa’s champion amid global crises, had also taken a knock, losing 1,05% to settle at $1 580,22 per ounce (R820 871,30 per kg) on 13 March 2020. By 16 March the price had tumbled to $1465,00 per ounce (R782 658,19 per kg).
Several governments are taking steps to support the crumbling economies in these trying times, including:
- France to guarantee up to 300 billion EUR to cover bank loans and support businesses most affected and will delay tax payments and social security contributions.
- Germany’s state bank pledged 550 billion EUR to their economy from state bank KfW and loosening rules for short-term compensation as well as offering tax breaks.
- Italy has postponed tax deadlines and pledged 25 billion EUR to virus-related stimulus.
- Australia has announced a fiscal stimulus of 17,6 billion AUD (including safeguarding of jobs and wage subsidies) as well as 1 billion AUD fund for tour operators and exporters.
- New Zealand will add 12,1 billion NZD to increase beneficiary payments and wage subsidies.
- The UK will dedicate 30 billion GBP to protect the economy against the coronavirus.
- Japan offered total of 2,03 billion JPY for pandemic relief, 1,1 trillion JPY to support loans, 430,8 billion JPY for medical professionals and those affected by school closures and 500 billion JPY in loans to companies affected by the virus
- South Korea has allocated 11,7 trillion KRW for medical response, households and businesses and offered tax breaks and rent subsidies.
- The USA has allocated 7,8 billion to fund response to the outbreak, lowered its interest rates and will inject 2 trillion USD to stabilise the bond market and ease financial market instability.
- Spain’s PM has pledged a 1 billion EUR injected into the health system and a further 2,8 billion EUR transferred to regional authorities for healthcare services.
- Canada has pledged 1,1 billion CAD in financial measures and is prepared to use federal financing agencies for more stimulus as needed.
Other countries who have announced significant adjustments for health and socio-economic initiatives in this crisis include Egypt, Switzerland, the UAE, Malaysia, Singapore, Hong Kong and Thailand.
One country which has remained relatively stable in this whole debacle is New Zealand.
Entertainment & Sport
One of the most affected industries to follow tourism is undoubtedly the entertainment industry. Individuals and companies who rely on events and gatherings have little recourse. Where public events are banned, they’ve no choice but to cancel, and save for prominent artists with insurance and contingency plans, artists, venues and concert-goers alike will have to cut their losses.
Important worldwide gatherings and events which have been postponed include:
- Rugby Union Six Nations
- Rugby Union Six Nations Women
- UEFA Champions League
- Europa League games
- UK Premier League
- Boston Marathon
- Hong Kong and Singapore Sevens
- Asian qualifiers for the 2022 World Cup
- Los Angeles Times Festival of Books
- Coachella Valley Music and Arts Festival
- Barcelona Marathon
- Italian Football League
- Kentucky derby
- Swiss Football League
- Portuguese Football League
- No Time To Die (James Bond) film release
- New York International Auto Show
- Sports Emmy Awards
- Technology & Engineering Emmy Awards
- Juno Awards
- World Athletics Indoor Championships
- 2020 Rock and Roll Hall of Fame Induction Ceremony
- Newport Beach Festival
- French Riviera Film Festival
- Hong Kong Filmart
- Stagecoach Country Music Festival
Important worldwide gatherings and events which have been cancelled include:
- Chinese Grand Prix
- Ultra Abu Dhabi
- 2020 Mobile World Congress
- Forum on Human Rights
- Swiss International Film Festival
- Series Mania
- Long Beach Grand Prix
- NFL Draft’s public Las Vegas Events
- BNP Paribas tennis open (USA)
- St Patrick’s Day Parades (USA & Ireland)
- Houston Livestock Show
- Coronavirus in Business Conference
- Tomorrowland Winter in France
- Tucson Festival of Books
- Texas South by Southwest festival
- San Francisco International Film Festival
- Canadian Film Festival
- Indian Wells tennis tournament
- Senator Bernie Sanders & former Vice President Joe Biden – cancelled campaign events
- E3 gaming convention
- Google’s I/O developer event
- London Book Fair
- Ultra Miami
- Paris half-marathon
- All SADC scheduled meetings
- MTN Bushfire
- Afrika Burn
- Two Oceans Marathon
- Paris agricultural show
- Australian Formula 1 Grand Prix
Important worldwide gatherings and events which have been restricted:
- The View, Late Show with Stephen Coclbert, Tonight Show Starring Jimmy Fallon – will continue without studio audience
- Major League Baseball, Major League Soccer National Hockey League – limited access
- Ligue 1 French soccer league
- Bahrain Grand Prix – will continue without spectators
- Proteas vs India final ODIs – no spectators allowed
- Nepal: All Himalayan peaks closed
- Disney releases: Mulan, New Mutants and Antlers postponed
- Paramount’s release: A Quiet Place II delayed
- Saudi Arabia: Al-Haram Al-Sharif mosque temporarily closed to disinfect the premises, temporary visa restrictions for pilgrims
- Amazon studios, NBCUniversal, Viacom, Netflix, Paradigm, UTA, Gotham Group – all employees to work from home
- Walt Disney World and Disneyland parks, resorts and hotels closed or restricted worldwide
- Universal Studios Hollywood and Japan closed
- Museums throughout NY closed
Worldwide, countries are restricting gatherings to anything from 5 to 500 people, are restricting business hours for shops and closed theatres, cinemas and even wedding venues.
Costa Rica was one of the countries who quantified their losses, stating that they expect their tourism revenue for the foreseeable future to be halved. France’s finance minister Bruno Le Maire also weighed in on the economic impact, stating that their hospitality, travel and entertainment industries are facing major economic losses.
Some of the entertainers who have cancelled or postponed legs of their tours and events include Mariah Carey, X Ambassadors, Khalid, BTS, Stormzy, The Boston Symphony Orchestra, Green Day, Madonna, Avril Lavigne, Ciara, The Met Opera, Slipknot, Beastie Boys, Nine Inch Nails, Lacuna Coil, the National, Poison, Kiss, Santana, Pentatonix, Miley Cyrus, Keith Urban, Pixies and Glass Animals.
Sadly, though the financial losses as a result of cancellations or postponements may be devastating, the cost of not acting is far more concerning. The Italian government and healthcare industry has been the most vocal, perhaps, in rebuking other governments for taking the matter lightly. And their rebuke is one gained painfully, through their own slow response and failure to see the gravity of the situation.
Given events like the Cape Cycle Tour and Design Indaba and Toyota Woordfees, which saw a massive influx and movement of local and international travellers throughout SA, may have exposed thousands to the virus as no proper care was taken to limit contact.
Prominent figures who have been exposed
We are not alone in our tardy response, however. In the USA the republican CPAC conference which hosted numerous VIPs has confirmed that two VIP attendees had coronavirus at the time. Two delegates who’d been exposed to the virus had included Rep. Doug Collins and Rep. Matt Gaez. Doug Collins had been shown to meet and shake hands with President Donald Trump, while Matt Gaez had been on board Air Force One with the US president since. And then there are the hundreds of journalists who’d attended the event – people whose profession requires interviewing, covering events and travelling throughout the country for other major political events. President Trump had also shaked hands with infected Brazilian press secretary during a meeting at Trump’s Florida resort and several guests who’d attended Donald Trump Jr.’s girlfriend’s party at Mar-a-Lago had tested positive for the virus. Vice President Mike Pence was also present at these get-togethers. The White House Press Secretary Stephanie Grisham had confirmed that neither Trump nor Pence would be tested for the virus.
In the UK, Health minister Nadine Dorries as well as Labour’s Kate Osborne have tested positive for Covid-19 and MP Edward Argar has been isolated after dining with another UK minister who’d tested positive. Several MPs are currently in isolation. Yet despite interacting with the health minister before she was tested, Prime Minister Boris Johnson will not be tested as he is not displaying symptoms.
Other political figures:
- Canadian premier Justing Trudeau is in self-isolation after his wife, Sophie Grégoire Trudeau, had tested positive for the virus.
- The first case of coronavirus has also been registered at the UN offices in New York where a diplomat from the Philippines tested positive.
- Australia’s home affairs minister is another casualty – Peter Dutton had announced his positive test results earlier in March.
- In France, the culture minister Franck Riester had also tested positive for the virus in addition to five lawmakers who had attended a cabinet meeting with him and President Emmanuel Macron at the beginning of March.
- Italy’s leader of the Coalition Government’s democratic party, Nicola Zingaretti is another infected world leader currently in quarantine.
- Spain’s MP and secretary-general of the Vox Party, Javier Ortega Smith, has tested positive for the virus.
In entertainment the first celebrities who’ve announced their infection are Tom Hanks and his wife Rita Wilson who are currently in quarantine in Australia. This week both Idris Elba and Game of Thrones star (Tormund Giantsbane) Kristofer Hivju have announced that they’ve tested positive for the virus.
NBA players Rudy Gobert and Donovan Mitchell have tested positive for the virus and other victims in the sporting world include Arsenal’s manager Mikel Arteta and Chelsea player Callum Hudson-Odoi.
We’ve only just started to see the true impact of the virus on our economies and global trade. As most governments seek to maintain a fine balance between forestalling hysteria and containment, the reality is that the balance is truly an impossible goal. Whether waiting too long or acting too soon – the decisions have widespread repercussions.
A Game of Oil Fields
If you talk to the man on the street, the oil crisis of 2020 started in March 2020. Of course this is logical given the impact on the global economy.
But as a simple example of how much of this is fallacious, one need only look to the South African Competition Commission and how it had penalised several companies for artificially lowering prices to gain market domination. Price fixing is generally frowned upon, and yet in the world of oil it is the norm. The tipping point of the global oil crisis of 2020 (thus far), was Saudi Arabia’s decision to drastically lower oil prices in response to an unravelling in the Organisation of the Petroleum Exporting Countries’ (OPEC) internal negotiations. The principal countries being Russia and Saudi Arabia. The principal issue being a disagreement over cutting oil supplies by 1,5 million barrels a day.
The very reason for OPEC’s existence is to reach a collective agreement on how much oil to produce, explore and distribute worldwide and at what cost. Subsequently, the ‘need’ for oil, investment therein and other peripheral industries affected, are all guided directly by OPEC. It is a collective body which superficially and strategically guides global economies through price and output manipulation of oil and petroleum products.
It is problematic for OPEC, however, that other nations like the USA and Canada have entered the fray, and even more problematic that the USA has never been interested in joining their alliance or market equilibrium. It seeks dominance. One might say that Russia, Saudi-Arabi, Iraq and other OPEC nations seek the same, but given that they’ve maintained an alliance under OPEC since the agreement was signed in 1960, it’s safe to say that they’ve managed to keep this fraternity fairly civil until recently.
Here’s where matters become increasingly confusing though. Russia and Saudia Arabia had long been allies in OPEC as the two primary producers of oil in the ‘cartel’, as Investopedia calls it. Then there’s Iran and Venezuela, two other founding members, who are increasingly dismayed at being treated like ‘enemies’ while the UAE and Saudi Arabia supports US sanctions on Iranian petrochemical holdings. And yet, as news outlets like the Washington Post, Time, NBC, the Guardian and even the White House’s own press statements confirm, Saudi Arabia is one of the only countries worldwide which president Donald Trump has defended and supported throughout his tenure at the helm of the USA.
From a purely analytical point of view this is significant as the US president had, since his inauguration, taken radical stances against Islamic nations, foreign cultures and made equally radical policy and trade agreement changes to reinforce the USA’s position as commander of the global economy. Silence on Saudi-Arabia’s own policies, cultural and religious makeup, trade agreements, fiscal regulations and human rights issues would therefore carry no meaning on its own, but contrasted against the treatment of other nations it is significant. For instance, the US relations with Iran stands in stark contrast to its trade partnerships with Saudi Arabia.
As former senior FX trader and financial journalist Simon Watkins notes in his expose at Oilprice.com – it seems the world has a very selective memory when it comes to US and Saudi Arabian trade, having somehow forgotten that the Saudis had sought to ‘can’ the US shale industry between 2014 and 2016.
Conversely, the relationship between the USA and Russia has always been rather tenuous – the one moment Putin and Trump are defending each other (and news of Russian interference in his election has still not settled), while the next they are at complete odds. And what of US-Iraq relations, or Iraq-Iran relations?
One cannot, however, make the mistake of inferring too much. We are right to question the relations between these nations, but neither the stats nor the public statements made by either leader of these nations provides much guidance on the complex relations between them or their long-term strategies to dominate the market. You’d therefore often find articles online citing Putin as a US supporter, while in the same vein finding evidence of the Russian leaders making a mockery of US politics. As for Saudi Arabia, they’ve always acted in their own interest and have never been afraid to voice their stance, and the same goes for the UAE.
Our conundrum is therefore very much a matter of trying to equate our perceptions of a parliamentary representative democracy (South Africa) with the ideals and policies of federal constitutional republic (USA), a theocratic government (Iran), a federal semi-presidential republic (Russia), an absolute monarchy (Saudi Arabia), a federal presidential republic (Venezuela), a democratic federal parliamentary republic (Iraq) and so forth. Even though some of these systems are ideologically connected, they are at odds in many respects. Some have minor variations in rule and policy while some are ideologically at ends. We should bear in mind that South Africa’s political system is far more aligned to Canadian, New Zealand and Argentinian systems than any of those involved in the current oil wrestle.
Reasons for the oil war
As mentioned above, the long-term strategies and choices made by the leaders involved in the oil debacle, we can make certain assumptions.
The source of Russia’s gripe with Saudi’s insistence at lowering oil production is its belief that this move by OPEC countries would give the USA monopoly over the industry, as the US is the second-highest producer of oil in the world. Though the 12% in global oil production by the US trump’s Saudi Arabia’s production, the latter still has as much as 260 billion barrels stocked up underground which still makes them the no.1 in the market.
If countries in OPEC without Saudi reserves would limit their production, it would therefore maintain Saudi’s no.1 spot while giving the US more ‘market share’ compared to OPEC countries – something the Russians are not having. Saudi Arabia had asked Russia to make the largest cut to oil production at the last OPEC meeting in an attempt to keep commodity prices high.
The coronavirus is a major culprit in cutting global demands at the moment – industries aren’t shipping, sectors are imploding and people aren’t driving. China, for instance, had already cut foreign oil imports by 20% since the outbreak started.
The Saudi Arabian response to Russia’s obstinance was a 30%+ drop in oil prices in one day to $35 per barrel on March 9 (the lowest drop since 17 January 1991) with further slides of 25% on March 13 and nearly 10% on March 16 to $29 per barrel – on par with US prices at 16 March 2020.
While such a strong-handed move is nothing new, some wonder if the Kingdom had been prudent in waging an oil war in the current global crisis. For as countries scramble to manage their own health and economic crises, there is little room for playing price wars in a world where all funds available are diverted to critical sectors. Other countries also have a far wider catalogue of skills and services to offer the world. Consider, for instance, that Saudi Arabia’s economy relies on fossil fuels for approximately 80% of their total revenue. Given that the world was already slowly heading towards renewable energies, the Saudi Kingdom’s harsh action may spell the worst disaster for their own country. Consider that in addition to the revenue loss linked to oil price cuts, Saudi Arabian Oil Co. (Aramco) stocks fell by 12 percent in the past week.
The International Monetary Fund notes that ideally, Iran would need $195 per barrel to balance its spending, followed by $109 per barrel by Algeria, $70 per barrel by the UAE and $83 per barrel by Saudi Arabia. The sliding prices therefore hold few benefits for any member states.
Furthermore, the Saudis’ previous major price and production ‘amendments’ had cost OPEC member states an estimated $450 billion in losses according to the International Energy Agency (IEA), so caution among member states is quite understandable.
One need only look to SA, where Sasol has lost an estimated 90% in a global sell-off of equities.
CNN analyst Matt Egan places the responsibility for the oil crisis solely at Russia’s doorstep. Though Egan may have a point in blaming Russia for part of the debacle, his analysis seems to exonerate the US entirely from its role in the crisis and lacks the objective view one would hope to gain from a world class news network. Egan is right to assert that Russia wishes to maintain its footing in the market – but he seems to fall short in dishing out blame judicially and addressing the complexities of the industry, merely lamenting the pain suffered by the US oil industry. We’d be wise to maintain an objective, rational and logical stance when analysing matters in the current crisis – there is truly not one culprit to finger in any of the crises unfolding.
The US oil industry is indeed knee-deep in trouble, indeed, as both prices and stocks plummet. President Trump had intervened with strategic petroleum reserve ‘fill ups’ on March 13, but this has done little to stabilise the market over all. The bid to prop up prices through crude oil purchases is, as with Saudi Arabia’s price drop, usually a sure-fire move. But no one has seen the likes of the current economic crisis.
And yet if we think we have it bad now, we should remember that the OPEC+ deal between Saudi Arabia and Russia expires formally on 1 April, when the gloves may come off officially.
We are bound to see tensions increase between OPEC states as well as OPEC members and the US as everyone struggles to defend their own economy and maintain their spots in the energy market.
We are therefore not prepared or able to predict what would happen in the near future. As vice president of oil markets at IHS Markit, Jim Burkhard, noted earlier this week ‘The last time there was a global surplus of this magnitude was never’.
The last time this happened was never
Burkhard has a point. What is happening in the world is unprecedented on many levels. Never have we had this level of global interconnectedness, access to international media, such population numbers, such political climate or access to technologies as we do now amid a global health pandemic.
Rand Rescue will strive to keep our readers updated on the news and hope that each of you remains untouched and minimally impacted by the crisis unfolding before us.
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