Commentary. The Arab world and the Gulf are on the verge of collapse, Iran is in a state of crisis because of US sanctions, and in North Africa, from Egypt to Algeria and Tunisia, an unprecedented recession looms ahead.

The oil warriors are playing a deadly game

At just $20 a barrel, the world of oil is experiencing a severe crunch, because of the price war between Saudi Arabia and Russia and the drastic drop in international demand, depressed by the pandemic and the economic crisis that comes with it. In just a few weeks, consumption has fallen from 100 million barrels per day to 75 million, a drop of 20%.

As the bewildered Trump, who finds himself on the edge of an unthinkable crisis, gave Putin a call Monday, there is the looming prospect of ruin for the American shale oil companies, but more importantly for entire peoples and nations who are living off “black gold” exports. 

The Arab world and the Gulf are on the verge of collapse, Iran is in a state of crisis because of US sanctions, and in North Africa, from Egypt to Algeria and Tunisia, an unprecedented recession looms ahead, accompanied by never-ending conflicts and crises of legitimacy for regimes that must at the very least manage to feed their people. 

It is a destabilization that affects Iraq, Syria, Iran, Lebanon, Jordan and the millions of refugees wandering in, and left on the margins of, increasingly poorer countries that are now also being ravaged by the coronavirus epidemic.

This is a world that more or less directly depends on “black gold” and investments linked to the oil industry, in order to make ends meet and simply survive. While even the Gulf countries, the richest ones, are tightening the purse strings, the prospects are even more frightening for all the others. For instance, Qatar will have to cover the cost of the $150 million it just donated to Gaza.

The United States is in the background of all this, and not at all far removed: they are not abandoning their goal of regime change in Tehran, the Middle Eastern epicenter of COVID-19, while Turkey settles its accounts with the Kurds by assassinating Nazife Bilen, the highest-ranked woman among the fighters of the PKK. This is only to be expected, since crises—even the worst ones—do not stop wars, nor do they stop the wilful butchers of entire peoples, like Erdogan, who is still waging an endless fight against Assad in the humanitarian hell of Idlib.

Things are happening that have no precedent, not even in the Great Depression of 1929: companies are getting paid to take away the surplus oil. This situation has never been seen before. The producers can no longer figure out where to store it, which is why a number of countries and several multinationals have begun to shut down the oil wells, and even the refineries. When the coronavirus crisis ends, the opposite might well happen: there might not be enough black gold on the markets.

The oil war was triggered by Russia’s momentous refusal to cut production as Saudi Arabia had asked it within the framework of the “OPEC+1,″ the agreement of the historic oil cartel with Moscow that so far had kept oil prices afloat. Trump is now clinging to Putin, trying to persuade him to get the prices back up after convincing the “black prince” Mohammed bin Salman to cut production. Moscow, however, doesn’t want to give in and is intent on putting debt-burdened US companies out of business, and is ready to burn the reserves of the Russian Sovereign Fund ($150 billion) to cover the missing revenues. At stake is the leadership of the energy market, not only for oil but also for gas, where Russia dominates supplies in Europe both directly and with the help of the hub in Erdogan’s Turkey.

This is why the battle for the oil price has formidable strategic implications: it is also about influencing events in a vast area, from the Mediterranean to the Middle East to North Africa. But even the Tsar might have second thoughts: the price-slashing game can turn deadly.

American shale oil companies are on life support. They began their rise in 2008, when the cost of the barrel had nearly reached $150, an outrageous price that pushed companies to invest in innovation, but also to get into debt. They already encountered difficulties in 2016, when the decline in crude oil prices began, and now they don’t know how to repay their debts and their stocks are downgraded to near-junk status. Since that year, there have been dozens of bankruptcies in the industry, with debts in excess of $120 billion.

There is much wailing and gnashing of teeth for everyone in the sector. The effects of the price drop might be understandable from an economic point of view, but the situation looks much more dire from a strategic perspective: if this situation continues over a longer time, the budgets of oil producer countries, already in difficulty due to both domestic and international factors—such as Iran, under embargo, Algeria, in a very critical transition phase, Iraq, beset by revolts, and Libya, strangled by civil war—might be dealt fatal blows. In these countries, oil pays for everything, or almost everything: from bread on the table for ordinary people to the blackmail of militias that nobody is able to hold back.

Subscribe to our newsletter

Your weekly briefing of progressive news.

You have Successfully Subscribed!