Years from now, when historians and economists begin tallying the devastation wrought by COVID-19, it is likely only a few will focus much on world energy markets. Yet if there is one thing that has snapped into sharper view with the onset of this global pandemic, it is the extremely brittle state of OPEC and the autocratic governments that rely almost exclusively on the cartelization of oil markets to prop up their regimes. In September, OPEC will mark its 60-year anniversary as the world’s most preeminent price-fixing consortium. But it seems far from certain that the governments of the 13 states that currently make up the oil cartel will be able to survive a likely global recession, let alone the full-on, pandemic-induced depression that the International Monetary Fund is now predicting.
The warning by the IMF this week is a reminder that poet T.S. Eliot had it exactly right when he said, “April is the cruelest month.” If the IMF’s projections are accurate, the regions likely to suffer more than any other part of the world are the Middle East and Central Asia. The swath of territory spanning from Morocco to Pakistan is poised to potentially suffer a 4 percent downturn in GDP—a decline even sharper than in the rest of the world. Given that roughly half of OPEC’s member states sit within or are contiguous with those loose boundaries, it is almost as if an occult hand is poised to knock out nearly half of OPEC’s leadership.
Although it appears for now that OPEC’s top producer, Saudi Arabia, has cobbled together a truce with Russia in their price war and agreed to oil supply cuts, the U.S.-brokered cease-fire is probably only temporary. The historic supply cut of nearly 10 million barrels per day that Russia and OPEC agreed to late last week looks to be a just-in-time solution for the world’s biggest producers, including the United States. But for some non-OPEC states that only partially bought into the deal, there is likely to be far less room to maneuver when it comes to the much-needed revenues that their oil exports might generate. Even in a consortium scenario where stakeholders’ mutual interests are best served by price stability and a measure of predictability, controls on the flow of oil to markets are only as strong as the governments and policies that backstop domestic economies.