Oil prices have plummeted, what is the impact of international financial markets?
■ Observer
Falling oil prices may exacerbate the shrinking demand effect, and international trade and the economic growth of countries face new uncertainties.
Following the biggest weekly drop since the financial crisis last week, on March 9th, the catastrophic collapse of 31% in the financial market oil price caused global concern.
Affected by the global epidemic, crude oil originally showed a sharp downward trend. On March 6, the talks between OPEC and Russia and other non-OPEC oil-producing countries on further production reductions failed, and the OPEC + alliance was facing collapse. The subsequent price war initiated by Saudi Arabia triggered a plunge in international oil prices and the shock of global financial markets.
The fundamental reason why Russia and Saudi Arabia talk about collapse is because of divergent interests: Saudi Arabia needs to further reduce production to maintain a balance between supply and demand and relatively high oil prices, but under the OPEC + alliance mechanism, production reduction requires the active cooperation of non-OPEC oil producing countries such as Russia.
While Russia has done everything possible to reduce the constraints of its production reduction agreement on its own oil production, it has done little to enjoy the benefits of the reduction agreement. Negotiations did not resolve this fundamental issue, which led to a price war in Saudi Arabia. Obviously, this move will bring new challenges to the international energy markets, the economies of oil-producing countries, and the world economy.
First, the international energy market has entered a new round of drastic changes. Saudi Arabia ’s price war will lead to a further oversupply of global oil supplies. International oil prices will inevitably usher in a plummeting, and may even lead to a new record low oil price cycle.
At the same time, the international energy landscape has ushered in a new reshuffle. In particular, the future gaming relationship among the three super-oil-producing countries of Saudi Arabia, Russia and the United States deserves high attention.
The price war is not only destructive to traditional oil-producing countries such as Russia, but also a huge threat to the United States. This is not only because its shale oil production costs are higher and higher oil prices are needed, but also because of the pressure on US President Donald Trump to see the stock market and economic data deteriorate.
Second, the economies of oil-producing countries, including Saudi Arabia and Russia, will face severe challenges. Stock market volatility has intensified and fiscal pressure has increased. If ultra-low oil prices continue, many oil-producing countries will face fatal pressure.
Finally, the decline in oil prices is undoubtedly good news for consumer countries, which will help countries to reduce production costs and increase crude oil reserves. And new countries face new uncertainties in economic growth. Based on possible subsequent US financial policy adjustments, emerging and developing countries may face greater pressure on financial stability.
The market panic caused by the price war launched by Saudi Arabia may soon pass, but whether it can bring the results that Saudi Arabia wants is beyond the control of one country; the continued turmoil in the international energy market is an anchor for the stability of its own energy market. The image is not good news for Saudi Arabia, which chairs the G20 this year.
□ Zou Zhiqiang (Associate Researcher, Middle East Institute, Shanghai International Studies University)