We knew the coronavirus was coming for the economy, but a dispute between Saudi Arabia and Russia just sped up the trouble.
A U.S. oil bust would hurt the economy in at least a couple of ways. First, it will deal a direct blow to states like North Dakota and Texas where drilling is a major industry; we’re probably going to see a lot of laid-off rig workers in the coming months. Second, it’s likely to chill U.S. business investment, which has come toon the oil and gas industry.
But lurking underneath those issues are potential landmines in the debt markets. Risky energy companies have borrowed an enormous amount of money in recent years byto investors looking for high returns at a time of low interest rates. Many people have worried what would happen if those companies started to go bankrupt and default on their debt.
Aside from Saudi Arabia’s decision to launch a price war, none of these issues really comes as a surprise. Economists, investors, and journalistsfor a while that if oil fell as a result of the coronavirus outbreak, it could wreak havoc in the bond markets. But the kingdom’s move started knocking over the dominoes more suddenly than most people expected—and brought us a little closer to seeing a worst-case scenario play out.
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