Scenes from the crude carnage

The oil wars continue in earnest. There are half-hearted efforts to broker some sort of truce between the major oil-producing nations but the lack of political will is evident. And meanwhile in economies that live and breathe on oil revenues, the mayhem wrought by the low prices has entered a new and dangerous phase.

We got a foretaste of this recently when the Saudi Binladin Group, one of the world’s largest construction firms, unceremoniously terminated some 77,000 foreign workers and promptly issued them exit visas. The workers retaliated with protests in Jeddah and Mecca, some of which turned violent. Some workers refuse to budge, complaining of months of unpaid salaries. The Labour Ministry has had to step in and give assurances that all expat workers will be fully compensated.

This trend will continue and we will see a mini-exodus of Pakistanis returning home. We will see a bump in our unemployment count. The more worrisome impact will be the heavy dent in our foreign remittances, some 65 per cent of which comes from the Gulf states.

We may count ourselves lucky though. Other countries are seeing far heavier costs. For instance, there’s Canada where low prices have pushed the oil rig count to record lows, resulting in massive layoffs and a fiscal crisis. We don’t hear about these things — given our current fixation with Justin Trudeau’s charisma — but there’s actually a mini-humanitarian crisis brewing in Canada. The province of Alberta recently announced a two-year freeze on salary increments for about 7,000 government employees, citing “once in a generation” economic challenges. Food bank usage is spiking in oil-rich regions like Calgary and Alberta, crime is rising and home prices are falling. More shocking, however, are the direct human costs — in the province of Saskatchewan, another oil-rich region, the suicide rate has gone up by 19 per cent. In Alberta, it has climbed 30 per cent. In the first half of 2015, there were 327 suicides, as compared to 252 in the same period the year before. “This is staggering,” says Mara Grunau, who heads the Center for Suicide Prevention. “It’s far more, far exceeds anything we would ever have expected, and we would never have expected to see this much this soon.”

A mental health crisis is in full swing. Alberta has allocated an extra $10 million into the mental health services budget. Counselling services are reporting a “profound and significant” increase in demand for services. The Calgary Counselling Center says the increase in counselling sessions is nearly double experienced during the Great Recession. Specialists are warning of an accompanying health crisis: depression, stress, anxiety and food insecurity are contributing factors to obesity, which tends to lead to heart disease, cancer and diabetes. And, already nearly six out of 10 Albertans are overweight or obese.

As we move to underdeveloped countries, we see government incompetence exacerbating the carnage by orders of magnitude. A good example is Angola. As Africa’s second largest oil producer, Angola makes 80 per cent of its revenue from oil and is now reeling. The currency recently crashed to record lows. The president has had to dig into the sovereign wealth fund to pay government salaries. Chinese investment in public infrastructure projects, formerly a great boon, is quickly drying up. Moody’s Investors Service has downgraded the country’s debt rating and assigned a negative outlook. In desperation, the government has contacted the IMF for a bailout. And things are painfully interconnected. Portugal, already wrecked from the Eurozone crisis (and also on the IMF lifeline), is heavily invested in Angola, and its economy is ever vulnerable to shocks from that direction.

And it gets much worse: last year, to balance the books, the Angolan government cut down on public spending by a staggering 53 per cent. This included sanitation services, leaving some poor suburbs swamped with uncollected garbage. Coupled with heavy rains and mosquitoes, this situation ignited Angola’s worst outbreak of yellow fever in recent memory, thus far resulting in 2,000 infected and 250 victims dead. This crisis has already exhausted global emergency stockpiles of the yellow fever vaccine and prompted fears that the epidemic might spread to Asia.

The absolute worst case though is undoubtedly Venezuela, currently the leading candidate for the world’s worst economy. Venezuela — which reportedly has the world’s largest oil reserves — has very quickly devolved into a socialist nightmare farce due to low oil prices. The situation on the ground is surreal. Basic necessities like sugar, milk, butter, coffee and flour are in very short supply. Thanks to critical shortages, bakeries have stopped producing bread in some regions, Coca Cola is scaling down soft drink production, and leading international fast food chains have run out of french fries. Hotels are requesting tourists to bring their own soap and toilet paper with them. The government is so broke — and this is historically unprecedented — that it can’t even afford to pay printers to print new money! Mobs have taken to the streets, protesting against the government and looting supermarkets. Bizarre as it is, some citizens are now prowling the streets hunting dogs, cats and pigeons to eat. The IMF predicts 700 per cent inflation for Venezuelans this year. The days of the current government are clearly numbered. A credit event is a near certainty.

Watching this carnage unfold, there are important lessons here: first, we see in vivid detail the awe-inspiring power of oil as a weapon of mass financial destruction. We can also see the fundamental interconnectedness of things, the ever-growing complexity — and the resulting fragility — which characterises globalisation. We see how ingrained cultures of mediocrity and incompetence — so common to our part of the world — compound the damage by orders of magnitude. If current trends continue — and there is no indication that oil prices will normalise anytime soon — we can be very sure that we will witness fundamental geopolitical shifts in the Middle East, in Latin America and in other regions as well.

And, most importantly, we see the sheer peril of economic complacency. Many of the oil giants have been content with their status as pure resource-based economies and never seriously pushed ahead with economic diversification. But putting all of one’s eggs in one basket is rarely a good strategy. If we ever get around to thinking about what kind of economic destiny we should aim for in Pakistan, diversification with a healthy and sustainable domestic economy is only just common sense.

Published in The Express Tribune, June 3^rd, 2016.

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