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What lies behind the oil slump?

2020-03-09 | Global News

Markets are plunging today. Underneath the stock market crash is the oil crash, but what drives oil prices is not the coronavirus -although it is once again a trigger- but something far more dangerous.

Behind the stock disaster lies the oil...

Trends in oil prices during 2019

Oil has been on a sharp downward trend for months now. Speculators were not optimistic - and rightly so - about the future given the industrial recession virtually everywhere in the world except in China. The coronavirus only accelerated what was already happening. Forecasts of falling demand in China and Asia drove oil prices down by 17.7% between New Year's and the end of February.

The first to be affected were obviously the oil producing countries. So, last week, OPEC agreed to a cut of 1.5 million barrels a day in order to cushion a trend that was becoming increasingly strong.

Oil future prices last night.

However, Russia did not join the agreement. It didn't want to lose total revenue nor quotas. Saudi Arabia flooded the oil market in retaliation and prices plummeted to $33 yesterday. It was the biggest drop since 1991. Brent's barrel is now at $36.

...and beneath the oil lies the crisis in the background spinning war alliances...

Salman and Putin, March 2018.

What broke between Saudi Arabia and Russia is what was signed two years ago now: an alliance to ensure price stability "during ten or twenty years". Both Salman - newly arrived to the throne - and Putin needed to lower the risk of a price crisis. Salman in order to privatize part of the national oil company, his big vision for the future and the bridge between the Saudi ruling class and the "green deal". Putin in order to balance the state's accounts and maintain the average profit rates of a Russian capital dependent on hydrocarbon exports. Both in order to keep open war fronts from Libya to Yemen, inevitably through Syria.

The extent of the importance of this alliance for both is that, on the military fronts, they actually stood in opposing trenches. Russia made a deal with Turkey and Iran -the Saudis' main enemies in the regional imperialist game- less than a month later, as a strategy to expel the US and Saudi Arabia from Syria. The Saudis came to be considered the big losers of the Syrian war. But this was not the only contradiction. The pact cornered Iran within OPEC. The Iranians accused the Saudis of holding the organization hostage and the Russians -who were Iran's allies in Syria- of allowing Salman to design a policy of prices and quotas aimed at damaging Iran's increasingly suffocated productive apparatus.

In fact, it was the underlying trend of lower prices that increasingly solidified the Russian-Saudi alliance. The global crisis was still there, and although the US put pressure on Salman and part of the Russian bourgeoisie put pressure on Putin, when these two met again last October everything seemed to indicate that the "counter-geopolitical" alliance of the two imperialisms was expanding, rather than shrinking. In the end, even though each had armed the other's rivals, the Syrian war was drawing to a close, and in the Libyan and Sahelian wars they were on the same side.

...and tearing them apart

Turkish cavalry in Idlib.

It is no coincidence that this week's break-up between Russia and Saudi Arabia came immediately after the collapse of the Turkish-Russian alliance in Syria. The military alliances between imperialisms of these years had taken shape during the course of frictions and "localized" wars from the Maghreb to the Chinese Sea, via the Horn of Africa and the Mediterranean, in which each side was trying to assert itself immediately in its historical areas of influence. It did not matter in principle that they contradicted the new alliances that were emerging, also as an ad-hoc response, as a result of the trade war. The overall result has been that pandemonium of contradictory alliances in which apparently everyone was fighting against everyone while at the same time joining together.

However, a temporary drop in global demand -the result of the epidemic- has been more than enough to blow up the cuffs of a seemingly "contained" imperialist map.

What's next?

Coronavirus is turning out to be the fast-forward button of the crisis. The underlying trends of these years are accelerating: trade war, renationalization of production chains, increasing imperialist tensions, the emergence -and implosion- of alliances with bloc aspirations, militarism, authoritarianism and reinforced social control, dismantling of pension and social protection systems including health care... And what is more important: they are feeding off each other. The peculiar Russian-Saudi trade war is not only dragging down speculative markets, it will also immediately spur open military conflicts in half of Africa and Asia, setting in motion a domino of global consequences. Only the fall in prices is a real earthquake for Nigeria, Angola or Venezuela... but no less so for the US and Russia itself. Not to mention Saudi Arabia. As we have pointed out several times, the tendency to value the damage to one's opponent above one's own benefit is characteristic of periods of widespread imperialist conflict.

As we saw last week, all these tendencies are not limited to, or even centered on, the "weakest links" anymore. At a time when it is taken for granted in the US that the epidemic will prey on the mass of precarious workers who cannot stop working if they fall ill, when France is laying off public health workers in the middle of an epidemic, when the EU is presenting the arrival of tens of thousands of refugees as a security problem, rather than a humanitarian one, and when everyone is welcoming the reopening of the Chinese factories which supply the big American and European brands, even if on the basis of slave labor, we cannot say that this is a peripheral phenomenon.

In other words, the drop in oil prices, accelerated by the fall in demand resulting from the coronavirus epidemic, is an expression of a deep-seated industrial crisis... and of the development of increasingly bloody imperialist tensions throughout the world. In the current framework, it will in turn accelerate the tendencies towards war and the attack on the living conditions of the workers in each country.

What is developing before our eyes is an increasingly direct connection between trade quarrels and military conflicts on the one hand and between these and the attack on the living conditions of the workers and the whole population on the other hand.