Today and tomorrow, green transition ministers from 30 countries will be discussing “how to organize a green economic recovery when the acute phase of the pandemic is over”. By then, moreover, the oil industry will have completely changed, shaken by the fall in international prices.
COP26, the EU and the green deal
Today’s and tomorrow’s meetings and presentations replace part of the postponed COP26 meetings and will serve to set out the starting strategies of the various groups of countries. China and the United States will push for a relaxation of emissions targets and therefore of the pace of transformation of the energy system; and Europe will present its coupling between economic recovery and a “green deal”. Frans Timmermans, the European Commissioner for ecological transition already assured that “every euro” spent on economic recovery measures will be linked to the green and digital transitions.
However, Covid seems to have deflated the environmentalist framing. The “virtual climate strike” of “Fridays for the Future” three days ago, despite being hastily announced and promoted by worldwide media, was a failure with only a few hundred participants. And in German and French industry, there are many voices arguing that an “ecological transition” is unworkable in the midst of a recession. However, when we add the imperialist conflict to the picture, the wind of crisis seems to push rather than hold back Brussels’ intentions.
The US and the Rescue of Oil Companies
We are entering a new phase of the crisis of the oil companies. 40% of oil rigs have already closed in the US. Layoffs are multiplying throughout the country, oil-producing states are asking Washington for help, and quite a few large and medium sized companies are disguising themselves as small sized enterprises to access the preferential loans and guarantees that the government has launched against the recession accelerated by confinement.
Trump has shown himself determined to rescue the sector… but he is not quite sure about how to go about it. There has even been speculation of a restriction on imports from Saudi Arabia and massive contracts with large shipping companies to use supertankers as national reserves. But as the crisis worsens, it seems clearer that US finance capital and its think tanks are pushing in the opposite direction. They fear that state intervention will not be enough and money will simply go down the drain.
They have their reasons. As we recalled last week, oil production is capital-intensive and falling prices can easily turn into a financial crisis
The industry now owes $86 billion due between now and 2024, many of which are risky, low-quality debt. Pipeline companies must make debt payments on another 123 billion during the same period. Even before the coronavirus crisis, the financial industry was not happy with this, and many oil company bankruptcies seemed likely. Now the situation seems genuinely apocalyptic: US producers need almost $50 per barrel to be profitable. According to the CNN report, below $40 per barrel, 15% of US oil companies would not survive one year and another 24% would probably not survive two years. At $20 a barrel, basically everyone is seriously losing money, and more than 500 U.S. producers would have to file for bankruptcy by the end of 2021. At $10 a barrel, we will see over 1,000 bankruptcies. Currently, they pay less than $15 a barrel.
So there are basically two alternatives today: to give up and bail out the banks again if a critical mass of unpaid debt forms that endangers the financial system; or to nationalize the industry by taking advantage of the low prices it already has on the stock markets. The latter is only possible with a Democrat government willing to undertake the “Green New Deal”. The first, at present, seems the most likely.
The great German opportunity
With US oil companies in a similar industrial crisis, the loss of relative attractiveness of their oil companies as a destination for capital can only escalate. And that is the chance for the European “green pact” to succeed. With internal energy markets regulated to impose clean or transitional energies, the change in the energy framework of heavy industry could be a golden opportunity for European oil companies to recover their capacity to attract investment. The promotion of new electrical transport and new infrastructures, always under unfailingly protectionist commercial frameworks and with more or less directly subsidized investments, would have a chance to convert the flow of capital fleeing from the US into the injection that European industry needs in the midst of a recession.
In Germany, more and more analysts understand that this is the only real possibility of maintaining the global weight of German industry after having lost the technological race with the US and China during the last decade. And Merkel seems to share this view when she insists that Germany’s EU presidency will be focused on the recession – and the green deal.
The “Green Transition” would increase the old power’s capacity as a capital concentrator. But not only vis-à-vis the US, but also within the EU itself. German capital would thus gain precious time in the midst of the post-covid recession against China and Russia… at the cost of increasing tensions within the EU even more.
The meaning for workers
What the European governments are planning under the name of “reconstruction” is nothing more than the recovery of the profitability of their respective national capitals. The aim is, and cannot be otherwise, to transfer income from labor to capital on a massive enough scale to revive capital. It will take the form of even steeper declines in real wages than during 2008-2014, among other things because these will be accompanied by price increases in basic necessities, starting with energy… in the midst of a green transition.
There is no possible choice between a “green reconstruction” and a “hydrocarbon-based reconstruction”. The goal of both is the same: to revive capital. Of course the forms, the dominant technologies, the relative prices, the balances between capitals… everything that matters to a fund manager, a director or a bureaucrat would change. But as far as we workers are concerned, no matter what country we are in, both are essentially the same: a comprehensive attack on our living conditions.