Commentary: Facing a two-front COVID-19 assault, Saudi Arabia pulls out the sledgehammer
Saudi Arabia has imposed drastic measures to curb the coronavirus spread and resist a challenge in oil markets, which may give the kingdom a fighting shot at coming out better, says Shahid Hussain.
ABU DHABI: While the COVID-19 outbreak has ravaged through most parts of the globe, Saudi Arabia stands out.
The country is battling the coronavirus on two fronts as the kingdom is not only fighting to contain the pandemic but also facing an intensified economic fallout with the drastic plunge in oil price these past few weeks.
On the first front, while the country has seen zero fatalities, the number of infections has soared in recent days, bringing the total to 238 on Thursday (Mar 19).
These figures put the kingdom ahead of its neighbours, such as Iran, where the number of cases has risen to over 16,000 with about 1,000 deaths.
PUTTING THE BRAKES ON THE CORONAVIRUS OUTBREAK
The chances of the epidemic spiralling out of control should have been higher in the kingdom, which receives roughly several hundreds of thousands of people from across the globe for the umrah year-round pilgrimage to the two holiest cities of Islamic faith, Mecca and Medina.
But the suspension of visits to these sites since early March may have prevented these mass movements of people from becoming a major source of contagion in the country and globally when pilgrims return home.
Religious leaders from the Council of Senior Scholars, the kingdom’s highest religious body, have also worked with religious leaders to suspend mosque activities, including Fridays prayers and the customary five daily prayers, with exceptions for the two holy mosque in Mecca and Medina.
Mosques will, however, continue to issue the ritual call to prayer, and direct people to pray in their homes rather than come to the mosque.
Observers are watching to see how whether such restrictions remain in place during the annual hajj pilgrimage, scheduled for end-July.
Saudi Arabia has also taken drastic measures in recent weeks to curb the spread of the coronavirus, after authorities ordered the closure of public establishment including malls and restaurants, closed schools and universities, and halted international flights for two weeks.
Travellers arriving in the kingdom are quarantined for 14 days. Failure on the part of residents to disclose travel history and health issues now comes with a fine of up to US$133,000.
Stringent precautions are adhered to where essential services have to remain open. Supermarkets and pharmacies have been ordered to sterilise shopping carts after each use. The Riyadh municipality has announced free distribution of sanitisers across the city to stop the virus spread.
Even then, the kingdom is taking no chances. On Wednesday, authorities have ordered companies to suspend work in headquarters for 15 days, save for those working in health, food and other essential services.
The oil-rich Qatif region has been placed on lockdown with restrictions on movements in and out of the province, the first of its kind in the Gulf.
WORRIES ABOUT OIL PRICES
But Saudi Arabia is fighting another battle on the economic front and has announced a steep US$13.3 billion cut in the government budget for 2020, amid falling oil prices and weakening growth expectations.
Oil demand has taken a beating after China, the world’s largest importer of oil and gas, went into lockdown, with the medium-term outlook bleaker since the coronavirus evolved to become a pandemic.
Attempts by the kingdom to avert a steep drop in prices through an emergency OPEC meeting with Russia failed to reach a consensus, after Russia refused to curb production, fuelling an all-out war for oil market dominance.
Part of Russia’s calculation may include a potentially fatal blow low oil prices could deal to debt-ridden American shale oil producers, who cannot afford to produce oil as cheaply.
The implosion of that alliance led the kingdom to slash prices by US$4 to US$7 dollars a barrel, with plans to increase production to 10 million barrels a day, leading to the biggest fall in oil prices on Mar 9, the steepest drop since 1991, with the US’ invasion of Iraq.
Oil prices, despite rebounds this week, could see further declines in prices to below US$20 a barrel over the next week, but the sharpest drop may come only in April, after a previously agreed OPEC-Russia deal to restrict production expires.
This drastic drop in oil prices will provide some economic relief to oil-importing countries and oil-intensive industries like the aviation sector, but will drain the coffers of oil-exporting countries.
But Saudi Arabia could come out of this price war in better shape to dominate oil markets compared to its competitors. Saudi Aramco, already the most profitable company across the globe with a US$2 trillion market valuation, has just announced a US$88.2 billion profit in 2019.
This figure might have missed estimates but suggests the company is cash-rich and can hold out well in an oil price war.
This strategy to flood oil markets may be a high-stakes gamble that could turn out to be the masterstroke that also gives the kingdom a stronger hand in oil markets and forces Russia back to the OPEC+ negotiating table.
RAMPING UP INTERNATIONAL ACTION
Amid these uncertainties, Saudi Arabia knows the only way to put the dampeners on the COVID-19 spread is through international cooperation.
READ: Commentary: South Korea succeeded in controlling COVID-19 panic buying, thanks to tracking and surveillance
For this reason, the kingdom has announced on Tuesday it will arrange next week for a virtual G20 meeting, as this year’s rotating president of the group.
The summit will aim to develop a coordinated response to the pandemic and discuss its human and economic implications. It will build on the ongoing efforts of G20 finance ministers and central bank governors, and senior health, trade and foreign affairs officials, Saudi officials said.
Such multilateral action is sorely needed to ensure the COVID-19 outbreak can be reasonably mitigated and contained in each country, instead of the finger-pointing and game of blame seen in recent days when US President Donald Trump’s tweet calling the coronavirus the “Chinese virus” provoked China to expel US journalists from the country.
Saudi Arabia so far has taken a sledgehammer to mitigate the public health fallout from the COVID-19 outbreak, seize oil market dominance and shape a coordinate response. Next week will show whether these responses will see results.
Shahid Hussain is CEO of a consultancy company based in the United Arab Emirates and writes about matters which shape trade and business in Asian markets.