As the global economy slows down, companies must react quickly in order to mitigate damage. OPEC+ held a meeting in the first week of March to decide how to suffer the least financial costs possible. Saudi Arabia, the oil carter’s lead member, stated that oil production should be severely cut in order to match the decrease in demand. This drop in production would stabilize prices and thus, minimize losses for OPEC members. Yet, the cut in production falls the heaviest on Russia, being the newest addition to OPEC,
and places the highest-burden on their oil industry. For this reason, Russia opted out of the agreement in order to continue exporting oil at the same rate. Russia’s decision to go against OPEC brought retaliation from Saudi Arabia who then slashed oil prices by the second-largest amount ever.
The stronghold OPEC has over oil prices translates into a worldwide drop in oil prices. Small and medium-scale oil companies are now struggling to keep their heads above water after such a sharp decline in revenue. This brings us to the winners and losers of the oil war.
The USA is the world’s largest producer of oil, with the majority of production coming out of Texas and Philadelphia. Due to oil prices plummeting, companies like Halliburton have had to furlough 3,500 workers. Many workers don’t think they will be re-employed and are worried about future job prospects. The U.S. oil services industry was already declining because of investments shifting to the clean energy sector, but this price fall may be the final straw. Does this mean that Saudi Arabi wins? Or Russia? Saudi Arabia is definitely set up with a long-term advantage over its rivals, having the lowest production costs as well as shielded public assets to compensate for less revenue. On the other hand, Russia stands to lose almost $40 billion by not following OPEC orders. Ultimately, OPEC as an institution is faltering due to internal conflict and tense relations between leading members.
If the oil industry is taking losses, does this translate to a healthier environment? Not necessarily. Due to the COVID-19 outbreak, movement is limited and emissions are declining. China’s CO2 emissions have decreased by 25% in the past two months and the international spread of the virus suggests a similar pattern will be seen in most countries. Lowered emissions are expected to be a temporary impact, however, and consumption habits will most likely to return to what they were before.
Contrary to the oil industry, the clean energy sector may experience a more serious decline in revenue. Electric vehicle sales are expected to stagnate for the first time in 10 years, while investments in clean energy have declined 25% since the start of the year. Oil consumption, in general, will be easier to finance due to the drastically lower prices. Since it is cheaper to fill up your gas tank, more people will be driving and emissions will begin to increase again. Particularly in countries like Russia and Saudi Arabia, where there are large oil reserves, they can drill freely to support exports. As nations without strict environmental standards or carbon taxes take up a larger share of the oil market, the environmental damage oil production causes may worsen still.
The drastic impact of COVID-19 is significant within the oil price war discussion. The meeting in Vienna was held as a reaction to China’s substantial decrease in oil consumption. Many former employees of oil companies are double the risk of not being able to find an income after being fired to due the lack of job prospects at the moment.
The immediacy of the pandemic steals all media attention so that other world events are almost forgotten. The virus appears at the forefront of all of our lives, so much so, it is difficult to imagine the world operating as it used to. We search for a silver lining among all the somber news reports: maybe economic stagnation will be better for the environment? It should not be dismissed, however, the strained effect COVID-19 is having on international relations and how they progress.
The recently ignited oil price war has potentially disrupted the peace within a powerful trading cartel, placed many people out of work during a worldwide economic decline, and made the environmental consequences of the oil industry even more severe. Taking all of this into consideration, can there really be any winners?