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Graph showing recent collapse in US oil prices
By Arian Mufid:
The biggest campaign in the world today is against the coronavirus pandemic. The world’s governments, in order to save human capital, have ordered lockdowns in towns and cities including shops, malls, factories and also airports. As a result, there is no travel between countries and cities all over the world. There is almost no travelling by car between cities. The biggest economic sector hit by this is the oil industry. The demand for oil has plummeted by one third to an extent that has never happened before. The US has tried to stabilise the oil market and influence Saudi Arabia to come to agreement with Russia to reduce oil production. The two biggest oil-producing economies in the world came to an agreement at the beginning of April to reduce daily oil production; together with the G20 as well, all together this has come to 20 million bpd. The market did not react to this agreement as the world had doubts and reservations. The usual, pre-lockdown world daily oil consumption is 93 million bpd, covered by 10 million bpd from OPEC, 11 million bpd from the G20, 12 million bpd from Russia and 10 million bpd from the USA.
The major oil-producing countries such as Russia, US and Saudi Arabia are running out of space for storage. The oil sector is one of the biggest sectors in the US, employing 10 million people with 9,000 oil companies operating in 33 states. West Texas Intermediate (WTI) declared last month that the US oil price had crashed below zero as the coronavirus shattered demand. WTI used to pay $15000 per super-tanker for the storage of 2 million barrels of oil per day. Now they must pay $150,000 to get rid of 2 million barrels of oil per day.
The collapse of oil prices has hit the oil-producing countries badly. Saudi Arabia has called for further measures to combat the oil price reduction. Russia has been forced to revise its federal budget. Venezuela has declared a 60-day constitutional “state of exception” since 60% of state income has been slashed due to the oil price collapse. In Azerbaijan, people have been killed and injured because of rioting in the streets due to an increase in the price of foods. In Iraq, they have had to reduce their oil production in line with OPEC demands. According to Kurdistan 24, on 20th April the KRG finance minister announced that the KRG is ready to cooperate with Baghdad in this situation of oil price collapse. Iraq is the second-largest oil-exporting country in the Middle East, with 12% of the world’s proven oil reserves. Iraq’s oil minister announced that the monthly oil income will be $1.5 billion as a result of this market collapse, compared to the previous $4.5 billion per month. Iraq has the biggest share of its state income going to pay the salaries and wages for civil servants and as well as its contribution to the KRG budget. Due to the oil price collapse, the KRG could not continue with business as usual since the Iraqi government cannot contribute to covering the wages. The KRG’s oil minister and prime minister need to be straight with their own people since they cannot pay their wages and salaries for civil servants in the KRG area. These payments are four months in arrears, as the local observers have confirmed to me. In the KRG, 70% of the budget goes to pay wages and salaries of civil servants. In Iraq, 60% of the budget goes to pay wages and salaries of civil servants. The oil price collapse and economic crisis is the second-biggest disaster to hit the Kurdistan region. The president and the prime minister of KRG need to be up to this challenge and prepared for it.
