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Economic Nationalism: The Return of the 1930s
An oil price war was sparked last week due to fears that the Covid-19 pandemic would result in a global recession. As oil prices fell, the oil producing cartel OPEC hoped to cut production in a bid to increase prices. These plans fell into disarray once Russia, outside of OPEC but cooperating with the cartel for a number of years, announced they would not accede to the cuts in production. This sparked a retaliation from Saudi Arabia who increased oil production, sending oil prices spiralling.
A full price war erupted as Russia respond by increasing its own production; the market reaction was one of panic and the Dow experienced its biggest fall since the crash of 2008.
The failure of the two oil giants to cooperate means both will now suffer. And as they pump out ever more oil in a futile quest to undermine each other, so too will a number of poorer oil producing countries, many of whom are politically unstable.
As economic cooperation among oil producing nations gives way to economic nationalism, the global economy will also suffer. The low price of oil is already causing precipitous stock market falls which, in the context of the current pandemic, is likely to contribute to a more generalised economic crisis. Such beggar-thy-neighbour policies are reminiscent of the protectionist actions that nations pursued in…
