The world is well convulsed during these weeks and its rotation seems to virtually stop due to the force of this pandemic and to the deceleration of such an important commodity as petroleum There is an atmosphere of crisis.
If it is due to the COVID19 pandemic, this is not the first time that civilization has experienced an outbreak of international dimensions that extends beyond borders. Since before the start of the current world calendar, the plagues of Athens have been known. The first epidemics that have a historical & scientific record were the Antonine Plague and the Justinian Plague at the dawn of the first millennium. There were also the pestilences present in the 17th, 18th & 19th centuries; a pandemic in the 20th century; and the epidemics that we already carry in the present century. And none have been able to paralyze the world.
These diseases generate uncertainty, worry and anguish. Also, social unrest, political tension, as well as scientific discoveries. The world turns again, with fewer inhabitants perhaps, but with more interaction than before. And this time, it will take a while to understand it as a society and have the confidence to circulate again outdoors.
In the case of oil, civilization has also gone through several crises, starting with the one that triggered the entry of the US to the second world war when the Japanese attacked Pearl Harbor in retaliation for the oil embargo that affected their warlike interests, passing through the best known ones of 1973 and 1979 crises originated by two different armed conflicts. And before the last century faded, another war confrontation sparked a crisis in 1990.
This oil crisis is quite different from the previous ones because instead of raising the price of a barrel of oil, it lowers it to levels well below the world standard cost of production due to the global economic slowdown caused by the pandemic. Secondly, it has a political context since it has temporarily prevented Russia from carrying out its ambitious Iceberg Project that would exploit the resources of the Arctic, the last frontier to be discovered with huge mining-energy deposits.
Russia then responds with a price war with Saudi Arabia at the OPEC and causes an immediate drop in oil prices worldwide, directly affecting the powerful interests of the hydraulic fracturing industry especially located in Texas, recognized for their generosity with Trump.
And it is in Texas where the solution to this crisis comes from. They will call on Trump to call his colleagues from Saudi Arabia and Russia in turn to reach an agreement that benefits them all and will drive the price up again in a declining world market. But the world is different from when the price agreement broke. There are fewer cars circulating, fewer planes flying and fewer ships sailing until the pandemic that affects us is controlled. In other words, there is no one who consumes oil.
The opinions expressed in this guest editorial are solely those of the contributor and do not necessarily represent the views or positions of Finance Colombia, it’s publishers, journalists or staff.