They can't drink oil

      The collapse of the oil price has several major implications. It is an economic tsunami. For the oil-producing developing countries, in Africa and elsewhere, it means an extraordinary loss of revenue. That’s the case for Nigeria, Angola, Congo, South Sudan, Algeria, Libya, Indonesia, Mexico, Brazil, Venezuela, Iraq, Iran, and so on. It adds fuel to social instability in those countries. It brings, at least, a new level of poverty and hardship to their populations. For the developed countries, it carries serious capital losses for the pension funds and other sovereign funds that were heavily invested in oil corporations and all the other companies that deal with bits and pieces of the oil industry. For all of us, it discourages new investments in renewable sources of energy. The bottom rock oil price makes any renewable too expensive to contemplate at this stage. 

The oil consumption is at present very low, because of the lockdowns that are implemented all over. But also, because the United States has continued to pump vast amounts of oil. They are now the largest producer, with 12.3 million barrels per day. President Trump could have compelled the industry to reduce daily production. There was a recommendation to cut it by 2 million barrels per day. He decided not to act because he saw this branch of the economy as a key pillar of his political basis. There are 10 million oil and gas sector jobs in the US, plus many billionaires that inject money in the Republican camp.   Now, he is promising them billions of dollars in subsidies. Public money being wasted when the solution was to reduce exploitation. His political choice has a huge impact on the domestic taxpayers’ money and on the world economy. It is inexcusable.

They say that misfortunes never come alone. Indeed.

Fast and plenty of money

The key concern is to safe lives. All the efforts should take that as a priority. And make sure that the infection trend is bent and starts pointing down. The sooner we change the trend the better. It will send a message of hope. And that type of message is urgently needed.

The economy is the other dimension we must consider. We cannot find ourselves surviving the disease and dying of the treatment. The productive tissue must remain as intact as possible. Firms and jobs must be helped. They will require major injections of fresh capital. The leaders should keep sending the message that money will not be a problem.

A challenging March

As we get into March, we can be sure we will have major challenges in front of us. The coronavirus will probably be the most critical. It has all the key ingredients to confuse many of us. People will keep pressing the panic button and the political leaders will be jumping in all directions, just to show to the citizens that they are moving as required. Then, there will be the economic impact. On the economic side, the crisis can be multifaceted. There will be less demand, the supply chains will be disrupted, and many enterprises will face serious cash problems. In addition, the stocks will not be able to recover the immense value that has been lost during the past week and probably the week ahead.

Obviously, the health systems will be under serious stress. They will become distorted as much of the resources will be focused on the Covid-19 pandemic.

Adding to the above, we will see an escalation of the conflict between Turkey and Syria, supported by Russia, a new migratory crisis and a Brexit on the rocks.

This is a time that calls for a new type of leadership.