US, WASHINGTON (ORDO NEWS) — Oil has a disgusting habit of making itself felt during periods of global recession. At the beginning of 1973, the global economy rejoiced, marking a quarter century of sustainable growth. Towards the end of the year, the golden era ended abruptly when a cartel of oil-producing states called OPEC boosted oil prices, thus responding to the support provided by the West to Israel in the Doomsday War.
Rising oil prices have become a feature of all subsequent global downturns, excluding the current one. This time, oil prices fell rapidly and fell to the same level as last week after the invasion of Iraq in 2003.
This time, oil prices are a symptom, but not the cause of the problem. The first rule of the economy is that the price of a product is determined by the ratio of supply and demand. And today, the two largest oil producing countries, Saudi Arabia and Russia are trying to produce as much oil as possible, despite the fact that demand for it has fallen sharply.
This is costly for both countries, especially Saudi Arabia, which will have to cut budget allocations significantly due to oil revenue losses. Moscow and Riyadh think that for the sake of capturing a larger share of the market, it is worthwhile to suffer for a while. They chose the American shale mining market as a target, which is growing rapidly but very heavily credited. So, in order to be profitable, the US shale sector needs oil prices to be much higher than today’s levels.
Behind the price war is not only the economy, but also geopolitics. Russia is not only alarmed by competition from US oil exports, but also unhappy with the sanctions imposed by Washington against its state-owned oil company Rosneft for trade relations with Venezuela.
Theoretically, lower oil prices are good for economic growth. When fuel becomes cheaper, business costs go down, and consumer wages go up. But now is another time. The decrease in oil prices at the beginning of the American driver’s season is supposed to lead to the fact that Americans will often drive. However, the Covid-19 pandemic disrupted the normal course of life, and this year the driver’s season is unlikely to take place as such.
Similarly, in Britain, consumers can buy gasoline much cheaper than a month ago, but they will not go to pubs and cafes for the money saved, because everything is closed.
At the end of last week, oil prices rose slightly when Donald Trump announced that he would support US producers by increasing his strategic reserve. But since the global economy is facing a decline in production, which was not even during the Great Depression, the downward trend in oil prices will continue.
OPEC is not as strong as before, and attempts to include Russia as an associate member have failed. The fact that Saudi Arabia is currently chairing the Group of 20 developed and developing countries only underscores the weakness of international cooperation at a time when it is urgently needed.
From the point of view of Riyadh, it’s quite logical to open the valve now. The Saudis believe that they will be able to win this race downward. In any case, without cooperation with Russia, production restrictions will not work, and Saudi Arabia has a lot of oil, and production there is cheap.
Vladimir Putin’s approach is somewhat reminiscent of the Cold War era. Russia staged a demonstration of its US economic strength and indirectly warns the Saudis that they should increase purchases of Russian military equipment.
But all this is also alarmingly reminiscent of the 1930s, when the United States adopted the Smoot-Hawley tariff law, and this provoked retaliatory protectionist measures. The neighbor ruin policy has returned.
Supermarkets justify their credo
In the era before the coronavirus, that is, just a few weeks ago, corporations had such a fashion – to proclaim their “goal”. About 90% of such boring statements were the work of the PR and advertising departments, and they were not particularly trusted. And during the crisis, a small consolation for us was the fact that we discovered how companies actually show determination, diligence and enterprise. First of all, this applies to supermarkets.
They adapt their logistics networks to new conditions on the go, which makes a deep impression. They hired a small army of temporary workers to fill shelves and deliver goods. One director of the Tesco store said that new workers can be hired, trained, and “put into business” for four hours. Meanwhile, the ASDA supermarket chain connects with travel agencies and the hotel business, and takes staff to work from there. Others act through relatives and friends of their employees.
These organizations work flawlessly. In normal times, the director of the Morrisons trading company, David Potts, would have smiled at his statement that his supermarkets “serve the country.” But now such a statement sounds convincing, especially in combination with such a measure as immediate payment to small suppliers, which aims to ease their burden by giving extra cash.
Of course, not everything is perfectly debugged. Websites are straining from additional online demand. During the opening hours of stores, not all customers can buy what they need. And the restrictions for those trying to stock up for the future had to be introduced earlier.
But in this round we must applaud. Ask yourself: would you like government ministers to distribute food during the maximum load on the system? Let’s hope that when the crisis passes, the authorities will not forget to thank their employees with generous bonuses.
“Am I not very competent in these matters?” Asks Tim Martin, head of the Jers Wetherspoon chain of pubs. The only possible answer to this is: yes, old man, not really.
Martin occupies a unique place among the leaders of the companies included in the FTSE 350 index. He has the impression that he is obliged to express his views on how the government should deal with “this health threat”. Of course, you will be surprised, but he prefers such an approach, when the population will be given the full right to visit pubs and bars, such as his.
“Of course, I am not an expert, but I have my own point of view, and that’s all I can say,” he said on Friday, offering another amateur analysis. “More people were infected with the virus in one building, in parliament, than in all our pubs combined.”
Unfortunately, Martin did not say where he got such statistics from. But he wanted all 867 Wetherspoon pubs in Britain to continue to work. Of course, no one allowed him this, and on the same day they were closed.
Naturally, we hope that Martin’s company will survive and thrive again when epidemiologists decide that the “health threat” is no longer so formidable. He has a successful business, there are a lot of loyal customers, and decent beer at a reasonable price is served in his pubs. Weatherspoon is a great establishment.
Martin himself revives the corporate scene in those matters in which he enjoys authority. His recent remark about the dangers of a template approach without taking into account specific features in corporate governance was supported by many, even the leadership of one important fund.
But in that case, Martin spoke from a height of rich professional experience and brought a bunch of evidence in support of his arguments.
But there are topics that he better keep silent about. The national health emergency is one of them.
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The article is written and prepared by our foreign editors from different countries around the world – material edited and published by Ordo News staff in our US newsroom press.