As with other sectors, the COVID-19 pandemic has slammed the global oil and gas industry. At the end of May, the International Energy Agency (IEA) reported the pandemic “set in motion the largest drop in global energy investment in history.” Rather than rising 2 percent in 2020 as had been anticipated at the beginning of the year, the IEA’s new report, World Energy Investment 2020, expects total global investment in energy, including the electricity systems and measures to increase energy efficiency, to drop 20 percent, i.e., by about $400 billion. Moreover, “a combination of falling demand, lower prices, and a rise in cases of nonpayment of bills mean that energy revenues going to governments and industry are set to fall by well over $1 trillion in 2020”, according to the new IEA report. 

In addition to the direct effects of the pandemic slowing global economic activity and reducing energy demand, governments are stepping in to cut oil production as part of the OPEC+ deal and to address the overhang in world oil supplies. Kazakhstan’s Tengiz and Kashagan oil fields operated mostly by Chevron and the North Caspian Operating Company, respectively, were reportedly asked to curb production by 22 percent. The Chairman of Kazakhstan's Association of Oil Services Companies Rashid Zhaksylykov stated TengizChevroil and Kazakh-American oil companies are suspending some of their projects and operations. Azerbaijan also reportedly asked BP and its partners operating the Azeri-Chirag-Guneshli offshore field to cut production by around 75,000 BPD.  

As a result, many jobs associated with oil exploration, production, processing, and transportation have been adversely affected. Chevron, for example, is reportedly scaling down its global workforce by around 10-15 percent. Similarly, BP revealed plans to reduce its workforce by 15 percent, or around 10,000 employees, with senior office-based positions being the main focus for downsizing. Moreover, in the oilfield service industry more than a million jobs will likely be cut in 2020. Disruptions in the energy sector in the form of halted projects have also negatively affected construction companies’ jobs, leading to protests in some cases. 

Boom/Bust cycles have long been an energy patch reality, but the current situation seems unusually severe. While actions to address the macroeconomic impacts of the pandemic in the Caspian and other parts of the world can help turn around the decline in oil demand as part of the process of opening economies, the sector will probably require specific measures to help its recovery. As the new IEA study reports, if investment remains at 2020 levels, it would mean a risk of tighter markets in future years if demand starts moving back towards a pre-pandemic trajectory.