US, WASHINGTON (ORDO NEWS) — The global oil sector is shocked by negative oil prices, overloaded storage facilities, falling demand and calls for a revolution in renewable energy after the completion of the COVID-19 pandemic. US and European oil market analysts are hoping for a recovery in oil demand in Asia.
Even international financial institutions (IMF, ECB, and OECD) indicate that the future of economic and energy demand is inextricably linked to China and India. OPEC’s oil and gas producers, who for decades have preferred Western economies, have reoriented their investments and oil and gas strategies in an attempt to capture these future markets. Before the outbreak of COVID-19, China was already a key global center for trade, investment, and geopolitical influence. While some experts warned of China’s alarming economic and financial situation, this country remained the main investment target for major investors.
The growing fears about Beijing’s geopolitical aggression in the South China Sea and the negative consequences of its One Belt, One Way initiative were not enough: countries, world conglomerates continued to build economic ties with the Asian giant. Arab manufacturers of OPEC are also not protected from the influence of China, given that more than 50% of their total investment goes to the country. China believed that it would always be a vital partner due to its huge population and growing political and economic opportunities. However, COVID-19 mixed all the cards. Earlier, the unexpected consequences of the pandemic could only be heard in analytical reports and Hollywood horror films. No one expected this to become a reality. Now this has happened, and the main potential consequences of this disease are much more serious,
The true extent of the damage from COVID-19 remains to be seen; trillions of dollars of support has already been provided to businesses. But geopolitical relations and trade routes have changed dramatically. China’s network of influence began to fall apart when it became clear how dangerous it was to rely on only one country in international trade and security. The lack of stability in the global economic system, when it comes to production and trade, will have a negative impact on China in the coming years. In order to counter and mitigate the consequences of future international crises or pandemics, a new sustainable soil is needed, based on a diverse economic system. It is dangerous for oil producers, especially OPEC and Russia, to expect that China will account for most of its future production. American shales are too much dependent on Cushing’s vault, and they lost a lot when WTI went into negative territory, and Cushing’s capacities reached the limit. Also, Arab manufacturers were hit hard by falling demand from China.
The next event, which has already begun in the main OECD countries, will be a rethinking of future investment projects or financing schemes, the creation of non-Chinese production centers or the return of production back to the country. This is reminiscent of Trump’s America First. But European parties see this as a necessary counterbalance to China’s growing influence. The Make Europe Great Again policy is already gaining strength. The automotive, chemical and healthcare sectors are redefining their relationship with China. The idea is being discussed of returning production capacities back to countries or the creation of new centers in India, Egypt or other places where high technology is available, a high level of education and where low costs can be saved.
OPEC strategists should also step back a little and broaden their horizons, going beyond China when it comes to economic interests. Restructuring of production due to geopolitical, financial and operational difficulties, its withdrawal from China, will undoubtedly limit the supply and demand for oil and gas in this country.
OPEC and Russia should evaluate options for restructuring their policies regarding China, which are being considered by OECD countries. Now we need new developing regions to increase the sustainability of the global economy. This transformation will affect future energy demand. Saudi Arabia, the UAE, Qatar and Kuwait should think about this before they face fait acompli.
COVID-19 changed international relations, revived nationalism, affecting the economic policies of the two largest economic players in the world, the United States and the EU. If this does not work, the future of OPEC in the oil and gas sector will suffer greatly amid falling demand from China. The oil cartel needs a new approach to sustainability-oriented economic policy. The future demand for oil and gas will no longer be focused solely on China. Therefore, any country pursuing its interests in this industry should build the future now.
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