The dramatic spread of the coronavirus, from a single case in China to a global pandemic in less than three months, has forced governments to take drastic measures to protect public health.
Besides the toll this new strain of coronavirus (COVID-19) has taken on people, it has also dented economic growth prospects and upended the oil market. The latter started the New Year on a positive note, supported by additional production adjustments put into place by OPEC and non-OPEC countries in the ‘Declaration of Cooperation’ for the first quarter of 2020.
“There is no doubt that in the last four weeks all the indices have deteriorated, be it in the economy, stocks, equities, financial instruments, metals, commodities and of course oil,” Mohammad Sanusi Barkindo, OPEC Secretary General, told journalists in early March.
Yet the economic fallout of COVID-19 should come as no surprise. Well before this outbreak, researchers were warning that infectious disease epidemics pose a growing threat to public health and by extension, the global economy. The consensus of several revealing studies is that the world is ill prepared to cope, and this seems to be borne out by the current pandemic.
Other major outbreaks so far this century include the severe acute respiratory syndrome, or SARS (2002–03); the devastating Ebola virus in West Africa (2014–16); the Zika virus in Latin America, which nearly led to the postponement of the 2016 Rio Olympics; and a recent Ebola virus outbreak in the Democratic Republic of Congo. Furthermore, pandemic influenza alone is estimated to cost $570 billion in premature deaths and lost income potential every year.
A recent study published by the Journal of Infectious Diseases, which used the West Africa Ebola virus as a reference case, suggests that epidemics may have a far deeper economic impact than previously thought. “The devastation of infectious disease outbreaks spreads much beyond the individuals directly infected,” it says. “In today’s interconnected world, economies and humans are linked far beyond their borders, which significantly increases the impact of any disease outbreak.”
A similar study published in the respected British medical journal the Lancet noted that “the most authoritative analyses of the risks to economic growth and stability shows barely any reference to infectious diseases.”
Weighing in on the disease threat, the World Economic Forum’s (WEF) 2020 Global Risk Report warns that the world’s “collective vulnerability to the societal and economic impacts of infectious disease crises appears to be increasing.” It recommends more public-private partnerships and trust-based relationships to improve preparedness and minimize the economic shocks when epidemics strike.
Significantly, the World Health Organization (WHO) has also expressed concern about COVID-19’s broad economic impact. Dr Tedros Adhanom Ghebreyesus, WHO Director General, noted that the pandemic “is not just a public health crisis, it is a crisis that will touch every sector.”
Major outbreaks like COVID-19 are especially destabilizing because they are unpredictable, dangerous and disruptive. While the priority has to be on public health, it is not too early to begin thinking about ways to mitigate such disruptions going forward. In fact, in exceptional times like this, regular dialogue, cooperation and trusted relationships grow in value.
To its enormous credit, OPEC offers a good model. The Organization’s focus on collaboration, discussion and information-sharing has proven beneficial to Member Countries, oil producers in general, and consumers who depend on a stable and economic supply.
For starters, OPEC’s universally respected work in supplying reliable, timely and accessible data is essential to gaining a better understanding of markets, trends and risks. Dependable and transparent data is a prerequisite for making strategic decisions and forms the front line in countering false or misleading information.
Secondly, OPEC’s regular high-level dialogues with oil-consuming countries, other international and intergovernmental organizations, and independent producers are vital to strengthening understanding and collaboration. The fact that these dialogues are inclusive and transparent reassures producers, consumers, investors and the economy at large. It is no wonder that as COVID-19 began to dent the oil markets, leading independent and international oil producers were turning to OPEC for leadership.
OPEC’s support, in conjunction with the OPEC Fund for International Development, for expanding energy access is also important. Energy poverty and vulnerability typically go hand in hand. Closing the energy poverty gap will help vulnerable communities become more prosperous and more resilient.
Finally, OPEC’s cooperation with other oil-producing nations has contributed to stability and sustainability of energy supply, benefiting producers, consumers and the global economy. The ‘Declaration of Cooperation’ has proven to offer an effective, trusted and powerful instrument for voluntary collaboration. By extension, the ‘Charter of Cooperation’ provides an ideal platform for examining the risk of future epidemics and pandemics and working together to reduce their market impact.
Throughout its 60 years, OPEC has consistently demonstrated the benefits of dialogue, cooperation and information sharing to address common challenges. It is a model for the kind of international collaboration that will be needed to recover from COVID-19, and of equal importance, to mitigate the human and economic damage of future public health crises.