Crude Conflict or Climate Justice
While COVID-19 keeps consumers withdrawn, ensuing economic turmoil was made much worse by the outbreak of an epic global conflict between today’s top three oil-producing nations: the Kingdom of Saudi Arabia, the Russian Federation, and the United States of America. Yet as we isolate ourselves physically, it is important to recognize real opportunities to convert the current crisis into a viable transition toward social, economic, and climate justice globally.
“How might we make this current crisis an authentic opportunity and a true turning point for changing the economic system plundering people and our planet?”
The crude conflict between the three countries exposes how energy can be an economic weapon of war. Consequently, control over oil—and hence over today’s economy as well as the amount of carbon emitted in our atmosphere—is now evermore concentrated in the hands of three autocrats whose political survival depends on our continuing to burn as much oil as possible before being banned by surging climate concerns.
Low oil prices set panic on financial markets
With oil demand dropping dramatically due to global pandemic, Russia recently rejected proposals by the Saudi-led Organization of Petroleum Exporting Countries (OPEC) to reduce oil production. To “teach Russia a lesson,” Crown Prince Mohammed bin Salman (MBS) suddenly set Saudi Arabia’s Official Selling Price so low it panicked global financial markets, since as much as one trillion dollars had been invested in U.S. shale oil on expectations that prices would remain much higher.
MBS’s flooding the market meant half of U.S. shale oil companies—perhaps Trump’s biggest base of donors—now face bankruptcy. One of Trump’s earliest and largest oil backers, fracking billionaire Harold Hamm, saw his net worth cut almost in half following news of MBS’s pumping oil at full blast. Global financial markets continue falling as businesses caught short of cash and credit clamor for financial bailouts. Congress’ coronavirus package included a $500 billion bailout for big businesses, from which oil companies can apply for financial assistance. Public pressure will be needed to ensure the new fund’s Inspector General enforces checks and balances that leverage larger changes, like a few listed below intended to help trigger oil’s just transition.
Another Oil Industry is Possible? Policy Priorities to Trigger Oil’s Just Transition
Inspired by peoples‘ movements for social, economic and climate justice, especially now in the context of COVID-19, grassroots groups across the USA are mobilizing for a “people‘s bailout.“ Today’s political moment makes it more important than ever NOT to rescue over-leveraged oil companies that embody our teetering economic model, drive disastrous wars, and corrupt our political system.
How might we make this current crisis an authentic opportunity and a true turning point for changing the economic system plundering people and our planet?
Building on principles already articulated by civil society, our big opportunity now requires to move on four fronts:
Prohibit the Federal Reserve to purchase corporate debt or equities of indebted U.S. shale oil companies. As Trump tries to rescue overleveraged oil companies—via central bank monetary support and fiscal stimulus—the public must avoid assuming risks inherent for oil investors. Defaults are already shuttering several shale companies, so no public financing for indebted drillers who were already granted federal exemptions for water, wildlife, and environmental protections—including the flaring of methane, a greenhouse gas far more immediate and intense in its impacts than carbon. No public purchases of oil-risk related liquidity facilities, corporate bonds, commercial paper, or money market instruments associated with increasing risks and costs. If any, assistance must be made contingent upon providing full disclosure in advance.
Demand disclosure of full climate risks of any oil assets assumed by the public, in advance and subject to democratic decision-making. As climate campaigners have been communicating to investors (with the smart money already adopting campaigners’ proposed practices), fossil fuel assets can become counted as liabilities when climate and other associated risks are recognized by private investors and public authorities. While excellent work has begun by central banks and investors to “climate stress test” banks and insurers, now is the time for expanding full disclosure of downside risks by the oil industry. Beyond climate, risks come from geopolitical conflicts, terrorist attacks, extreme weather events, disease disruptions, and social instabilities due to economic inequality. If no private bank is willing to buy U.S. shale oil companies given that MBS or Putin can suddenly switch the spigot back on at full blast, then nor should the public.
Deepen ongoing cutbacks of oil demand—with “normal” life in lockdown—we all re-learn how to live with less travel or trade. In restarting the economy from almost a full standstill, let’s keep demand down by discouraging driving combustion engine vehicles and other oil intensive activities while robustly funding new infrastructure for renewable energy economy, especially public transit with pristine hygiene practices. If investors need sectors to invest in, their money must be guided by new incentives that are truly ecological and equitable.
Advance a multilateral mechanism to stabilize oil prices and fairly share shrinking space for carbon in our atmosphere. Such an agreement among top oil producing and consuming nations would go beyond the current OPEC+ “Charter of Cooperation” that ignores scientific warnings of irreversible climate catastrophe. Neither Putin nor MBS now deny climate change; unlike Trump, Putin’s recent remarks indicate serious concern. Phasing out oil transparently, predictably, and fairly is the only way to avoid a “mad dash for the door” by herds of investors the moment a critical mass decides the climate science is sufficiently scary to dump all oil assets, possibly destabilizing oil economies round the globe. Oil’s decline must be managed according to climate science and principles of “climate fair shares,” which would preference countries having the heaviest reliance on oil revenue, the fewest options to diversify, and the relatively least polluting oil before nations that have already benefited the most monetarily from oil exploitation, and its historical emissions.
Of course, many other measures must also be taken to transition the industry that fuels the global economy yet the above actions could play a strategic part. People and the planet have already paid too much for the risks taken by the oil industry, so we must shift more of these risks to the parties most responsible for the problems industry creates. Today’s economic model built on fossil fuels intrinsically has the cause of its own collapse.