By-product of the economic crisis: a hit that has not been seen since 2009 in the oil industry • Expected: Consumption will drop by more than 25 million barrels per day and oil will remain in the ground

• Will oil stay in the ground? // Photo: Reuters

The Corona epidemic has created a huge upheaval in the markets and at one glance changed the global economy, in the face of paralysis that did not seem like many years with the convergence of each country itself. Many businesses are unlikely to return to business, and even if they return - it will likely take them a long time to recover. Tourism and aviation sectors have been particularly affected, and some of the recognized airlines have even announced the sale of entire fleets of aircraft or even their disappearance from the map because they have no way to "stand back on their feet."

A by-product of the damage to global tourism is a particularly serious injury to the oil industry: the roads are empty, the planes are grounded. As a result, there is no demand for oil, and its price drops to negative highs that have not been seen since the global economic crisis of 2008-2009.

According to some estimates, global oil consumption is expected to fall by at least 25 million barrels per day, which is about a quarter of normal consumption.

This means, as reported in The New York Times, the disabling of entire oil production facilities because there is nowhere to ship the crude oil: the distilleries will be beyond their capacity, and oil will have to remain in the ground. This is a shock that will hurt the richest countries in the world, but it may equally undermine the regimes of rogue countries like Venezuela and Iran - whose regimes are bribing citizens through the profits of the oil industry. And if the economic crisis is not enough, our region seems likely to be just as interesting because of the geopolitical implications of the Corona: Russia and Saudi Arabia are trying to exploit the situation to reshape not only the market by drastically lowering prices, but also the Middle East.

The hope of Saudi Arabia

It all started with an explosion in Riyadh-Kremlin negotiations on price coordination. Saudi Arabia hoped President Vladimir Putin would renew the agreement under which global oil production would be reduced to stabilize prices in the face of a lack of demand. , Refused to renew the agreement.

Last month, a ministerial summit was held in Vienna in an attempt to renew the agreement, but it exploded. Either way, the explosion of talks between the parties has led Saudi Arabia to cut prices sharply in an attempt to get European countries to import it from Russia instead. It can afford to absorb the losses, both because of its great wealth and because of its relatively cheap production costs.

Russia has also lowered prices, in part to prevent US oil exporters from gaining more market share. Both Russia and Saudi Arabia are losing big profits in the short term that could have made a profit, but in the long run, both Riyadh and Moscow seem to be looking at the post-Corona era. For Saudi Arabia, this is a strategic war for the future of the Middle East - Russia is still on Iran's side: the Kremlin refuses to participate in the harsh sanctions on Tehran and actually saves the Ayatollah regime by trade with it, and still wants to save the nuclear deal.

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Also, Russia still supports the Assad regime, while Saudi Arabia wants its removal. A victory over Russia in the Middle East will do much more for Saudi Arabia than any oil barrel can, so it feels that it can currently be hit in the short term. "Oil price wars will change the rules of the Middle East," a senior adviser to the Saudi royal court was quoted in an article in Gaitstone Institute. He said, "The Russians depend on oil revenues to fund their military operations in Syria, and if these revenues collapse, they will no longer be able to afford these wars."

But as mentioned, Russia is also willing to take a risk and not coordinate prices with Saudi Arabia for its own reasons, and they are also linked to geopolitical issues, most notably the US. In recent years Russia has seen how the US has been taking advantage of price rises to rake in cash, both from oil, And especially by promoting the shale oil industry as a replacement for crude oil. So, indirectly, Moscow and Saudi Arabia actually subsidized the oil shale industry and served the global energy market on a silver platter. That's why Russia is taking advantage of the Corona crisis to make it an advantage for it too: Take advantage of oil prices collapse to pressure Trump to soften The sanctions on Moscow.

Putin's rationale

Putin's rationale is to take advantage of the crisis and turn it into an opportunity: The worst hit by the fall in oil prices is the oil shale sector, which has become the US equitable weapon. As a result, President Trump is increasingly criticized by his most prominent supporters in the US economy. Trump's situation in Texas has begun to deteriorate recently because of the collapse of the energy market.

Either way, both Russia and Saudi Arabia seem to be failing to beat the market itself. Even the floor prices they offer will not bring the planes to fly again and the cars to the roads, as long as the Corona crisis continues.

In the short term, both are hoping to push the U.S. into a corner - and in the current election year, Donald Trump seems likely to be most vulnerable if the current situation continues.