Economic Struggles and Energy Challenges: The Need for Global Collaboration Amidst COVID-19
From The Canadian International Council, Toronto Branch
The COVID-19 pandemic has undoubtedly been the prominent challenge posed to the world in 2020. This novel coronavirus has effectively gripped the world, bringing many human activities to a halt in the efforts to contain its spread — the likes of which has negatively impacted many aspects of global affairs, particularly that of the global economy and global energy. As such, this article explores the importance of global collaboration in supporting the global economy and global energy amidst COVID-19’s spread.
The Global Economy
Indeed, the need for interstate collaboration in supporting an interconnected global economy cannot be understated, especially when considering the worldwide economic damage caused by the spread of COVID-19 as well as the strong potential for global economic struggles to continue amidst the virus’ ongoing transmission. The imposition of state lockdowns to prevent the spread of COVID-19 has effectively slowed economic activity across the world. June 2020 forecast reports from the International Monetary Fund and the World Bank respectively projected global GDP growth to be -4.9% and -5.2% for 2020. However, the OECD’s June 2020 Economic Outlook infers that even avoiding a second COVID-19 outbreak will still result in a global GDP contraction of -6% for 2020; the most severe economic recession in nearly a century.
In addressing the global economic crisis, one need only look at how global collaboration was successful in addressing the 2008 financial crisis, where the World’s GDP growth declined from 4.319% in 2007 to -1.678% in 2009. In this instance, the IMF and the World Bank reformed into financial institutions that could more effectively promote financial stability and support global development. More notably though, the G20 — consisting of both developed and developing countries — helped to broaden financial regulations, established frameworks for economic growth, and increased macroeconomic cooperation among the G20 members, which all aided in managing the impact of the crisis at the time.
Similarly, the G20 has been pivotal in the response to the current economic crisis. G20 leaders committed on March 26th to inject US$5 trillion into the global economy while Saudi Arabia, chair of the 2020 G20 Presidency, pledged $US500 million. With the March 26th meeting involving commitments to safeguard the global economy and enhance global cooperation, these commitments were backed up by the G20’s work with its partners in the IMF and the World Bank as outlined in the G20’s action plan. This plan included a G20 debt service suspension initiative to support low-income countries, a comprehensive IMF support package, and relief funding of more than US$200 billion coming from the World Bank and other global multilateral development banks.
With G20 finance ministers and central bank governors virtually convening on July 18th to make key economic and financial regulation commitments, the G20’s response to the financial repercussions of COVID-19 — despite there being some room for improvement — has been sound. This summit group has displayed the importance of global collaboration and must continue do so if the global economy is to recover effectively.
Global Energy: A Challenged Global Oil Market
Regarding global energy, international collaboration has been vital in addressing the challenged global oil market, especially after such cooperation was absent during the Saudi-Russian oil price war. This conflict occurred after COVID-19 had already caused state lockdowns and reduced travel, thereby contributing in part to the lessened global oil demand and prices in the first three months of 2020. The oil price war — which flooded the global oil market with Saudi and Russian oil from early March to the first two weeks of April — caused a global oil price plunge, with Brent crude undergoing a 42.5% decline in its monthly average price from February ($US55.66/bbl) March (US$32.01/bbl). The oil price war came to an end at a virtual OPEC conference on April 12th to a 9.7 million bbl/day cut agreement, which has been in effect since May 1st and continued to the end of July.
Since the end of the oil price war, it has been apparent that global collaboration is needed to balance the global oil market amidst the spread of COVID-19. Indeed, compliance with OPEC’s implementation of its 9.7 million bbl/day cut has been mostly sufficient. Notwithstanding this progress, June reports from the International Energy Agency and the US Energy Information Administration indicate that supply from non-OPEC members in the second half of 2020 is anticipated to be about 300,000 barrels per day higher than previously forecasted.
Furthermore, while the United States is currently operating without lockdowns amidst the raging spread of COVID-19 in the country, a second global wave of COVID-19 — especially amidst the approaching flu season — would likely force the perpetuation of lockdowns across much of the world. This would result in another downturn in global oil demand and subsequent low oil prices, forcing the need for further production cuts. Therefore, to ensure these cuts and prevent another oversupply issue, which in part caused West Texas Intermediate to go negative (minus US$40) at one point in April, global collaboration will be needed to ensure that potential production cuts accord with evolving demand.
To this end, OPEC will play a key role in formulating proposed production cuts. Yet, as explained by John Kirton and Sally Elliot of the G20 Research Group, OPEC’s inability to prevent the Saudi-Russian oil price war from occurring demonstrates how OPEC can struggle in getting states to agree to reliably control oil supply and prices. Due to this, further global collaboration between OPEC and international institutions will be necessary to establish additional production cuts and a balanced global oil market.
The G20 can once again help in this instance, having made many commitments towards stabilizing the energy market and enhancing energy security in its meeting of energy ministers on April 10th. While the meeting failed in ending the Saudi-Russian oil price war at the time, the meeting nonetheless displayed the growing power of the US as an energy power with the support of Canada, the United Kingdom, and Brazil — the likes of which are non-OPEC members and must be acknowledged.
Therefore, with the world lacking a world energy organization that can deal with oil crises similar to that of how the WHO addresses COVID-19 from a health standpoint, collaboration between OPEC, the G20, and potentially other intergovernmental institutions is important in enhancing international consensus on production cuts. Ultimately, this collaboration will very likely lead to a successful management of the global oil market’s future uncertainties.
Concluding Remarks
The COVID-19 pandemic is a gargantuan global challenge that requires a collective global response in addressing the various aspects of global affairs that are impacted by this virus — especially that of the global economy and global energy.
First, global collaboration is fundamental in addressing the global economic fallout of the virus’ spread, as a truly global economy that relies upon the economic health of trading partners and financial versatility of major industries requires a cooperative response. Thankfully, the G20 has responded with a strong collaborative effort, which will need to continue in response to the virus’ global spread. A weakening in collaboration will very likely only worsen the economic fallout in an interconnected global economy.
Second, the oil industry has been the main global energy concern amidst COVID-19’s spread. While compliance with OPEC cuts has been important, further collaboration between OPEC and the G20 will likely help the situation even more given the growing prowess of non-OPEC oil producing states. In contrast, a lack of collaboration, as displayed during the Saudi-Russia oil price war, will only worsen the global oil industry’s economic prospects.
Ultimately, without any global collaboration in these two areas of focus, the globe would likely suffer exponentially due to a weak global economy and a tumultuous global energy industry. If states can work together in these areas, then it will be a major win in the long and arduous global battle against COVID-19.
