The precautionary measures taken at the beginning of the health crisis could only have had a negative impact on consumer behavior across all countries of the world, thereby creating a sharp decline in demand for the inventories of global factories across various sectors. From the combination of these factors came a severe global decline in demand for oil.

Before entering into the oil issue, however, we must understand the importance of the industrial sector in sustaining the continuity of the global economy. It is no less important than other sectors. The oil and industrial sectors complement one another: there is no value in an oil sector that is not utilized by an industrial sector, and no industrial sector can stand without an oil sector. Yet, at the same time, the industrial sector depends on global consumption. In other words, the industrial sector is the essential link between the oil sector and the consumer sector.

The flames of the oil crisis were sparked by the stumble of the consumer sector as a result of the precautionary consequences of the coronavirus pandemic. That stumble could only reflect on the industrial sector through precautionary measures aimed at balancing the cost of manufacturing against the new decline in demand for products. Without doubt, this new balance appears in the form of a sharp decline in global demand for oil.

At the beginning of the health crisis, “OPEC Plus” met to agree on reducing global production in order to raise the price of a barrel of oil, with the aim of achieving profitability for exporting countries, believing that the stumble in the consumer sector would not last long. Yet the parties left the meeting empty-handed, without an agreement. This led to a reverse reaction from the Kingdom of Saudi Arabia, which in turn flooded the oil market, causing prices to fall, in an effort to target the largest possible market share that Russia or other countries that did not agree to the meeting’s terms might capture.

As an inevitable result of this flooding, the price per barrel declined, creating political fronts hostile to the Kingdom’s action, especially since the move served the interests of American shale oil companies with high production costs. These critics forgot — or were indifferent to — the economic balance that the Kingdom had achieved, whether intentionally or unintentionally, by reducing the burden on the industrial sector in its hardship toward the consumer sector. Perhaps an arrow may strike its mark even without a deliberate archer.

Yet each of us has opportunities to seize and hedge against. The outcome of those conflicts allowed China and other industrial countries to play their role in the scene, taking advantage of the decline in oil prices by increasing demand for oil and investing in its storage as a hedge against future price increases. Accordingly, the volume of demand for oil was not a “real” volume connected to the size of a sustainable consumer sector, but rather an “artificial” volume connected at the same time to other factors.

Following political pressures in all oil-producing countries, “OPEC Plus” met once again and announced an agreement to reduce total production by 10 million barrels of oil per day, believing that this would serve the continuity of the global economy.

Now, events lead us back to the industrial sector, which cannot withstand two blows at the same time for a long period. The first blow came from the consumer sector, while the second came from the oil sector after the second meeting. With the increasing decline in consumer demand caused by the consequences of the health crisis, and with the decline in global oil supply, the cost of industrial production around the world will rise, and rise progressively. This increase creates fertile ground for force majeure conditions to form in the industrial sector, producing a sharp contraction in its size. With this severe contraction, global consumer supply declines even more sharply, creating an increase in product prices as demand remains relatively stable or declines less sharply.

On the other side, and specifically after the second meeting, oil-producing countries will enjoy a gradual and temporary rise in the price of a barrel of oil. This rise will end once the consequences of the force majeure conditions mentioned above begin to appear in the industrial sector. At that point, we will see the real decline in demand for oil as the industrial sector gradually begins to contract. Then, and only then, we will witness a decline in the price of a barrel of oil to its lowest levels, as supply rises while demand falls. At the same time, we will see consumer product prices at their highest levels, due to a decline in supply greater than the decline in demand.

The “OPEC Plus” agreement was conventional, and it may have been acceptable in a political or industrial crisis. But today we are witnessing a health and operational crisis at the level of the entire world, a crisis that has reached us so deeply that it has disturbed the balances of the consumer sector. In this agreement, “OPEC Plus” did not take into account the larger picture of economic continuity. Rather, it offered a solution short of that, considering only oil-producing countries and companies, and only temporarily, through an action that will turn the balances of the global economy upside down. If the health crisis is not resolved as soon as possible, then we are closer to recession than at any time before.

How does OPEC Plus, oil demand, and recession risk affect the Gulf?

Its effect appears in how costs, incentives, and resources are managed, and in the Gulf's ability to turn decisions into sustainable value. The direct context is oPEC Plus, oil supply cuts, COVID-era demand shocks, and the risk of deeper global industrial contraction.

How does the factor of risk affect the success of fiscal sustainability?

Sustainability is not secured by revenue size alone; it depends on turning resources into renewable financial capacity while controlling recurring obligations. This makes risk an important test that separates temporary treatment from capacity that can endure.

How does the factor of risk affect the success of public obligations?

A state’s financial strength weakens as fixed obligations expand, because the room for reform narrows even when revenues appear large. This makes risk an important test that separates temporary treatment from capacity that can endure.

How does the factor of risk affect the success of public spending?

Productive spending adds capacity or productivity, while spending that repeats obligations expands the burden without building new income. This makes risk an important test that separates temporary treatment from capacity that can endure.