‘Black Swan’ Event: The Forces Shaping The Global Balance Of Power In The Coronavirus Pandemic
The world has never seen such tumultuous times since the Second World War. The outbreak of the Coronavirus has led to such catastrophic consequences that the largest economy in the world, the US, has witnessed an unemployment rate surging massively into double digits. As the experts say, the pandemic crisis can be classified as a ‘Black Swan’ event. Coupled with the decreasing oil prices due to a fall in demand overall, the pandemic has led to drastic cut in the profits of oil companies.
It was US president Donald Trump who initially advocated low prices of oil and gasoline in the interest of consumer welfare but at present he seems to be worried about the decrease in oil prices to their lowest level (i.e. to one seen thirty years ago). The decrease in oil prices has certainly led to a cut in the profits of US oil companies and at present the low demand for oil has created the threat of unemployment, as there is a likelihood that workers would be laid off.
But the massive cut in oil prices is also due to the fact that a dispute has emerged between Russia and Saudi Arabia, which are two of the top three oil producers. The issue arose as result of increased supply from a price war between these two mega producers of oil.
The reduced demand is simple to understand: factories are idle, airlines are flying less and people are staying at home. More complicated is the fact that the supply of oil is in abundance: talks between OPEC members – a cartel of countries that control much of the world’s oil production – fell apart as Russia and Saudi Arabia failed to agree on a pact to reduce production. Instead, the two countries, the world’s second- and third-largest producers of oil, announced that they would increase production, further driving down the price.
In the USA, the immediate concerns are the survival of energy companies and the job security of the nearly half a million people they employ. Due to low oil prices ,US oil companies have been faced with the daunting task of breaking even. There is now a huge gap between the cost to drill for oil domestically and the price paid for oil on the market. Producers in Texas, which has experienced a boom in recent years, need oil to trade around $50 per barrel to break even, according to a survey. Oil prices in Texas dipped just below $20 per barrel in recent weeks. Oil companies are running out of storage space, which means that in the future that the price of oil could drop even further if the same situation persists. Oil has shaped U.S. foreign policy since the presidency of Franklin D. Roosevelt and in recent weeks, the current US administration has used low oil prices to pressure geopolitical foes like Iran and Venezuela.
The sharp decline in oil prices also presents national security and geopolitical concerns. Sustained low oil prices will lead to a huge budget deficit in many developing countries, from Brazil to Oman. That fiscal deficit would almost certainly exacerbate challenges that these countries face amid the Coronavirus pandemic. The bigger long-term geopolitical consideration concern may be the implications for the Middle East, where the U.S. still keeps thousands of troops. According to Justin Worland, a political and international affairs expert, Iraq’s fiscal break-even point for oil (the price that is necessary for an oil exporting state to balance its budget) is $60 per barrel, as analyzed through the statistics of the International Monetary Fund.
In the future, the foreign policy is likely to be influenced by health considerations. Countries are likely to cooperate on research regarding health-related issues. Many political experts feel that China’s offer to help other countries during the pandemic, including US and European countries, would likely result in expansion of Beijing’s influence in global politics. And it would further push China to become a superpower, much to the dismay of US.
For instance, Italy’s urgent appeal for medical equipment and protective gear has been answered affirmatively by China. In fact, China publicly committed to sending 1,000 ventilators, 2 million masks, 100,000 respirators, 20,000 protective suits and 50,000 test kits. China has also dispatched medical teams and 250,000 masks to Iran and sent supplies to Serbia and Pakistan.
The status of the United States as a global leader over the past seven decades has been built not just on wealth and power. It also emanates from the United States’ domestic governance paradigm: progress in research, intellectual property rights, biotechnology, provision of global public goods and ability and willingness to organize and coordinate a global response to crises. The Coronavirus pandemic is severely testing what was hitherto considered natural US leadership in world affairs.
As the US administration is reeling from the crisis, Beijing is moving quickly to take advantage by filling the vacuum and positioning itself as the global leader in pandemic response. China well understands that if it is seen as leading, and Washington is seen as unable or unwilling to do so, this perception could fundamentally alter the United States’ position in global politics and the contest for leadership in the twenty-first century. The lesson that we can draw from the current pandemic crisis is that never before in history, apart from economic considerations, has a fear factor been so effective a tool to influence foreign policy and shape the global order.
In the future, rising nationalism and a call for protectionist measures by the developed economies cannot be ruled out.
The writer is a human rights activist, lawyer and teacher.