The world was fighting with Covid-19 but Saudi Arabia flooded the oil market to close the US shale industry. Every country requires performing energy markets for economic development but since mid- February oil and financial markets have been rocked due to Covid-19.
According to International Energy Agency (IEA), the oil industry is going through ‘the worst time in its history, and this could have major implications for the global economy, financial markets, and even more for employment’. The jobs and livelihoods of some 300 million people are at risk in the current crisis in the global oil business. The IEA calculated that in the refinery sector and petrol stations alone, around 50 million people are employed, and they’re supporting families totalling 250 million people, and most of them will lose their jobs if it continues like this.
Saudi Arabia became an oil producer through its oil field in Dahran for the first time in1938. It’s production cost is $2-4 per barrel which is cheapest in the world.
The first oil crisis was in April 1973 due to Arab-Israel War (Yom Kippur War), when the Organization of Arab Petroleum Exporting Countries (OAPEC) proclaimed an embargo on Europe/US oil exports, breaking the supply chain and resulting in severe shortages, rationing, and long lines to buy gasoline across America and Europe. Prices shot from18-20 pence a barrel to $1.29 a barrel. Gradually, prices skyrocketed 400 percent from $3 a barrel to $12 a barrel .
The second crisis was in 1979, when Iran’s revolution caused 4% shortage in global oil production This caused a break in the supply chain and prices shot to $39.50 per barrel over the next year.
The third crisis was during the Great Recession in 2008, when there was Iraq war was at its peak and discord in the Middle East. Iran-Iraq-Israel-US factors pushed crude oil up to an intraday record high of $133 to 147.50 per barrel. During 2008 Financial crisis oil price collapsed and prices plummeted below $40 per barrel.
After the 1973 oil shock, Europe and the US were determined to play ‘war and terrorism’ games and have done since 1979 in Muslim countries. Millions of people have died or made refugees in Afghanistan, Iraq, Iran and in other Muslim countries in the name of Arab revolution/Spring to protect itself against the Middle East’s rise and geopolitical shocks.
Since 1953, the US has been a net importer of oil. With the silent rise of China and Russia during 2003-2019, the US substantially increased its production of shale oil, coal and natural gas and became self-sufficient in oil and gas.
Then Covid-19 gave the Saudis the recession they’ve been waiting for. Many investors say that Saudi Arabia was waiting for a strategic opportunity of recession to force the US technological advanced shale industry to go into bankruptcy.
In the beginning of 2020, the Organisation of Petroleum Exporting Countries (OPEC+) decided to increase oil production to 20 million barrels per day while the world needs only 10 million per day due to Covid-19 lockdown. If the oil prices are staying in the $20 range, all the US shale industry will go bankrupt/close due to massive debt and failure to compete with cheaper Saudi oil. After that oil prices may go back to $80-$100 per barrel.
Dr. Mohammed Seemab Zaman is socio-political analyst as well as expert on international relations. Views are personal.