◼ C March 16, 2020What I’m
telling clients
Mark Haefele, CIO
at UBS Wealth
Management, Zurich
Taking a look at the
overall coronavirus
picture, we think it’s
going to accelerate a
lot of larger trends. One
is genetic therapies.
We’ve seen the rapid
sequencing of the
virus to see how it’s
mutating. Another one
is the digital consumer.
The trend toward use
of facial-recognition
software—that trend
is accelerating. And
the future of food, not
just moving to plant-
based foods but also
microfarming and the
provenance of food.
While markets
are good at pricing
slowdowns in growth,
they’re bad at pricing
just how fast a recovery
can take. People adapt.
There are some pent-
up sales. What makes
this such an interesting
period is if our baseline
view holds that this
gets settled in the first
half of the year, we’re
in a situation with low
interest rates and high
global stimulus applied.
With a global economy
that went into this in
decent shape, that is
a highly stimulative
environment. We
could see a very sharp
recovery in the back of
the year. �As told to
Joanna Ossinger13
●Saudi Arabia and Russia have long been at odds
over how to cope with falling oil prices. It took the
coronavirus to bring the conflict out into the open
and set off a price war that sent crude down as low
as $31 a barrel in early March.
For Russian President Vladimir Putin and Saudi
Crown Prince Mohammed bin Salman, oil is the life-
blood of their economies—and their political power.
Saudi Arabia depends on oil for almost 70% of gov-
ernment income, according to the International
Monetary Fund. For Russia it’s 40%, including gas.
On March 6, Putin refused to go along with MBS’s
plan to cut production among the oil-rich countries
to put a floor under prices. Riyadh then declared
a massive production increase for April, which
Moscow matched. Prices went into free fall.
Russia and Saudi Arabia have a common enemy:
the U.S. and its shale oil drillers, which have
grabbed an increasing share of the world’s oil mar-
ket. At first glance, the U.S. should be the loser in
the price war. Drilling in the Permian Basin of West
Texas and New Mexico is far more expensive than
in Siberia or the Saudi desert. Permian shale pro-
ducers need an average of $40 to $50 a barrel to
break even, according to Rystad Energy. Producers
have already been weakened by lenders reluctant
to finance their drilling and by falling demand
because of the coronavirus.
But much depends on the economic resilienceof the other combatants. If the price war persists
for months, Saudi Arabia appears in be in a weaker
position. Riyadh needs oil prices of more than $
a barrel to balance its budget, higher than at almost
any other time in the past 20 years. If it’s forced to
tap the piggy bank, the kingdom’s cash reserves are
$500 billion—down a third from their peak in 2014.
Russia has spent the past five years resetting its
economy to a lower oil price and rebuilding cash
reserves to $570 billion. Following a price slump
and U.S. sanctions in 2014, Moscow has lowered
the price at which its budget breaks even, to about
$50 a barrel from $115 in 2013. And Russian com-
panies can turn a profit at a much lower oil price.
President Trump cheered on the fall in prices,
tweeting it was “good for the consumer.” He may
feel the domestic impact politically, however. The
oil industry’s pain could hurt his popularity in
Texas. And the price plunge is ricocheting across
U.S. financial markets—his personal gauge of suc-
cess. To avoid disrupting his own presidency,
Trump may have to intervene to keep Moscow
and Riyadh from escalating further. The U.S. presi-
dent called the Saudi prince on March 9, according
to two people familiar with the situation. “It’s no
longer about economics,” says Chris Weafer, chief
executive officer of Macro Advisory, a Moscow-
based consulting firm. “All three of them are hurt-
ing at this price.” �Javier Blas and Jack FarchyWho wins the oil
price war?
◀ Opening hours at
a mall in Qingshan
District on March