- During the 1980s Saudi Arabia-US negotiation, a secret agreement resulted in an overproduction that prompted a fall in the oil prices, changing the structure of the international energy market.
- Global oil supply is expected to decrease by 12,000,000 barrels a day from May to 88,000,000 next year.
- According to the International Monetary Fund (IMF), the oil-producing nations cannot make money by selling an oil barrel at $40 dollars.
- One could state that the worldwide round of international relations has been delayed until a vaccine is developed and COVID is eliminated.
In the last few months, economic activity and demand have tumbled to unprecedented levels in the international market. The energy market collapsed in March when oil majors, Saudi Arabia and Russia representing the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC part nations, failed to agree over the production cut to boost the oil market.
However, on April 12, an understanding was reached to cut down the production and the member countries settled on a phase-wise production. The alleged ‘energy war’ pulled in enormous interest in the international energy market over what the shapes of the energy game will be.
The Start of Geopolitics in Energy
It all started with the Saudi Arabia-US negotiation during the 1980s, a secret agreement resulted in an overproduction that prompted a fall in the oil prices, changing the structure of the international energy market. The fall in energy costs affected the then Soviet Union severely. The 2008 financial crisis incited a similar situation.
However, a great deal has changed since. The US has made progress from perhaps the biggest consumer of global energy to a major energy supplier to the global energy market.
The significance of oil and gas can’t and ought not to be overlooked. While the nations trading oil earn cash per barrel of oil, the importing countries earn on the tax and returns which, most use to fund green energy projects.
The question that is bothering the whole energy community is whether the fall in energy value will affect the global balance of power or not. Russia relies heavily upon the export of energy resources and this could put a serious strain on their finance. A fall in the energy cost could drive Russia to reconsider its relations with other European nations.
US, which is probably the biggest exporter of liquified petroleum gas, isn’t immune to the crisis either. The business sectors tumbled when the costs fell below $20 per barrel and shale industries are dreading bankruptcy.
Asia and the Indian Context
In the course of recent years, the rise of major Asian economies has been driven by energy demand, the dissemination of innovation in the vitality space, and the governments’ approaches to oversee carbon discharges while seeking economic development. These elements are affected by fluctuations in the global market such as the shale boom in the United States and changes in oil costs.
COVID-19 is another event that could shape Asia’s energy space. Other worldwide turns of events such as rising U.S.- China trade war, growing stress on regional and international institutions, perceptions of democratic rollback, friction between some major energy producers, and a global financial recession are complementary to the disaster brought about by the pandemic.
The local level collaborations will have implications for Asia’s energy landscape, be it the ASEAN talks, the direction of China’s belt and road initiative in the region, or engagements, for example, the Quad (gathering Australia, United States, India, and Japan) or Quad-Plus.
COVID-19 could likewise sway regional dynamics as it has hampered the defence budgets, procurements, alignments, engagements, and priorities of key Asian countries for 2020 and beyond.
India is the third-biggest consumer of energy and the nation’s energy import from the outer market is also affecting global energy structure, as indicated by the IEA report.
Attracted by the low costs, India imported and stored an amount equal to 20% of India’s demand. India has a gigantic potential in solar energy and will probably look to completely harness its solar capacity to ensure sustainable energy change.
Energy and Climate
The pandemic is probably going to modify a couple of elements with its effect on energy structure. First is the disequilibrium in demand and supply in the global energy sector due to the slowdown in the economy. Second, the agreement reached by OPEC+ will guarantee another global energy order by creating agreement among major powers. Third, the slowdown in the conventional energy sector additionally gives a chance to development of the sustainable power source area and lastly, the pandemic gives a chance to energy-consuming nations to have more say in the global energy community. The link between energy and atmosphere has developed as of late. Since energy is responsible for 60% of the global emissions, incorporating the use of clean energy in the policy measures is critical.
The US and the Oil Economy
After this recession, the oil, gas, and coal section could have a difficult recovery time given the accessibility and falling cost of sustainable power sources. A smoother change to sustainability would be a guide to the energy security of the region.
One could state that the worldwide round of international relations has been delayed until a vaccine is developed and COVID is eliminated. But it can enforce a new agreement between the US, China, and Russia. That is not all, there are more concerns like the long-drawn trade war between the United States and China which exacerbated during the oil price crisis and the infra-US conflict regarding the reduction of local oil production.
In a situation where demand is volatile, the country with the highest cost of oil barrel production will suffer severely – in this case, the US. In the meantime, the Federal Reserve directed help to U.S oil and gas companies in its anti-coronavirus aid program in April. In any case, according to experts, firms that live with thin-line margins that depend on high-price might wind up bankrupt before the finish of 2020.
Fallout of the Pandemic
Global oil supply is expected to decrease by 12,000,000 barrels a day from May to 88,000,000 next year. According to the International Monetary Fund (IMF), the oil-producing nations cannot make money by selling an oil barrel at $40 dollars. Qatar scarcely can, Middle East nations need 60 U.S. dollars per barrel.
Differentiated economies such as Mexico, the Russian Federation, and the United Arab Emirates could survive, while some others might ask for loans or temporarily stop public spending.
Iraq, which is presently one of Italy’s principle suppliers, is helpless. Other nations include Oman, Algeria, Nigeria, Ecuador, Angola, Surinam, and Iran, and Venezuela, where the oil issue is in fact, a significant piece of global political emergency. Every one of these nations has a more prominent chance of falling into an indefinite crisis. Salaries have not been paid in the public sector and primary services have largely been decreased alongside military emergencies and incredible political unsteadiness.
Crisis such as this could expand terrorism, prompt the uncontrolled development of the worldwide crime, which could transform the failed states into bases to assault the still moderately sound economies of some Western nations.
Another immediate concern is the mounting regional tensions. The immediate drop in fuel prices has led to tensions among oil-producing nations. This also means that the fall in the value of crude oil will lead to benefits for countries such as Argentina since the country is close to bankruptcy. Similarly, it will profit other countries such as the Philippines, India, Turkey, and South Africa as they will pay substantially less for energy imports .
For Saudi, the enormous sun energy basin arranged by Mohammed Bin Salman’s Vision 2030 was halted inconclusively last November, while the privatisation of Saudi Aramco has now ended up being a disappointment.
The relation between the U.S and Saudi is good only till they are producing oil at the current costs. If Saudi loses its power due to oil, the alliance with the U.S. might be in danger too. This could lead to involvement by Iran which will look to enter the discussion other than military ways to establish itself in the world.
The end of the oil economy is close, sooner rather than later, yet nobody can envision what will befall energy markets and to our economies.
(Edited by Anu Choudary)
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