A black swan is slang for an unexpected event with large consequences. 2020 has brought us two so far: the COVID-19 pandemic and the collapse of oil prices.
Each will have potent consequences for the Imperium Americanum. And there is a nest of black cygnets maturing.
COVID-19
A new infectious disease was noticed in China at the end of last year, identified as a coronavirus in January and a pandemic was declared in March. Since then economic and social life has come to a stop in the West as governments have been convinced to declare shutdowns. Restrictions became widespread in March and April and are still in effect; while some jurisdictions lessen them, others talk about more months. It is not the purpose of this essay to wonder whether these measures were justified or effective, only to state that they happened and that the world economy will have been enfeebled for two to three months or even longer. A big black swan indeed.
The fuller effects won’t be known for some time but one result is certainly that the West’s repudiation for efficiency has taken a huge – perhaps fatal – hit.
Many of the American pieces, reflecting the abyssal divide in U.S. politics, write as through it were all Trump’s fault. But it wasn’t Trump who didn’t replace PPE stocks used up eleven years ago. Whatever failures are his, the failure is not his alone. And neither are the West’s other deficiencies his doing. No one seems to have stocks of PPE – the easier and most obvious first step against the threat.
China may not even be the point of origin: France has just discovered a case from December and there may be a U.S. case from November. The breathlessly reported Five-Eyes assessment blaming China is fast collapsing: “mostly based on news reports and contained no material from intelligence gathering” says one of the Eyes. Washington may lash its minions into a coffle, but the rest of the world will scorn it as a pitiful attempt to distract. There will be increased rejection of the West’s assumption of competence and veracity. And, in the West itself, more will doubt the words of “experts” (especially those from Imperial College and its professors), “authorities and “trusted media sources”.
Most of the West is still shut down but China is opening. Observers know that China is becoming the world’s top economy – the World Bank had already given it that title in PPP terms in 2013 – and COVID-19 is sure to accelerate the process by giving it a head start out of the economic slowdown. With cheap energy too.
Of the downstream effects of the COVID-19 black swan, we can see at least three:
- great and possibly fatal damage to the assumption of American and Western competence;
- a widening of the economic gap with China;
- a further change in the world soft power balance.
Oil
In March Riyadh, on behalf of OPEC, proposed to Moscow that they reduce oil production in order to keep prices up. Moscow refused and Riyadh started pumping. COVID-19 shutdowns collapsed demand. A month later West Texas Intermediate futures went negative and the price of a barrel of oil passed below $20.
Generally it is estimated that the U.S. shale oil industry (about 60% of U.S. production) needs prices of about $60 to be profitable, Saudi Arabia, despite very low pumping costs, squanders so much that it needs about $80; Russia on the other hand is profitable at $45 and has half a trillion dollars in its FOREX kitty. So, if Riyadh started a price war it is not in a strong position; Moscow, on the other hand, some say, can survive $25 a barrel for ten years. As China’s industry comes back on line, it is starting to buy oil but most of it from Russia.
The end result of this price competition in a demand crash is unknown but it is unlikely that the U.S. shale industry will do well out of it. And, because so much of Washington’s behaviour is based on the confidence that it is oil-independent, the U.S. will not come out of this stronger.
So two black swans are likely to leave the Imperium Americanum weaker and less influential. And, it should be said, more contemned. But there is more.
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