An oil price war was sparked last week due to fears that the Covid-19 pandemic would result in a global recession. As oil prices fell, the oil producing cartel OPEC hoped to cut production in a bid to increase prices. These plans fell into disarray once Russia, outside of OPEC but cooperating with the cartel for a number of years, announced they would not accede to the cuts in production. This sparked a retaliation from Saudi Arabia who increased oil production, sending oil prices spiralling.

A full price war erupted as Russia respond by increasing its own production; the market reaction was one of panic and the Dow experienced its biggest fall since the crash of 2008.

The failure of the two oil giants to cooperate means both will now suffer. And as they pump out ever more oil in a futile quest to undermine each other, so too will a number of poorer oil producing countries, many of whom are politically unstable.

As economic cooperation among oil producing nations gives way to economic nationalism, the global economy will also suffer. The low price of oil is already causing precipitous stock market falls which, in the context of the current pandemic, is likely to contribute to a more generalised economic crisis. Such beggar-thy-neighbour policies are reminiscent of the protectionist actions that nations pursued in the wake of the Great Crash of 1929.

Following that seismic economic event, the world economy underwent perhaps its greatest ever crisis. As historian Eric Hobsbawm described it, capitalism “seemed gripped in a vicious circle where every downward movement of the economic indices (other than unemployment, which moved to ever more astronomic heights) reinforced the decline of all the others”. In an attempt to buffer themselves from the global economic chaos, industrialised nations resorted to severe protectionist measures such as raising tariffs on imported goods.

Such policies proved mostly counterproductive and arguably worsened the severity of the Great Depression. For instance, the 1930 Smoot-Hawley Tariff Act passed in the US meant that the ability of other countries to purchase American goods was reduced (since their own exports were hit meaning they earned less foreign currency). Furthermore, placing tariffs on imported goods had the effect of eliciting retaliatory measures from other nations and global trade plummeted. Even Britain broke with its long-standing tradition of free trade, with the Abnormal Importations Act allowing for the imposition of 100% tariffs on goods manufactured outside of the British Empire.

The tit-for-tat trade war worsened the situation for all the capitalist countries and the liberal capitalist trading order began to break down. A mutually beneficial trading arrangement came to be superseded by a more competitive international economic environment. The global economy fragmented into competing trading blocs as each of the major capitalist powers constructed their own trading areas. Not only did world trade collapse but the fragmentation of the international economy undoubtedly exacerbated international political tensions as powerful nations became more antagonistic toward each other; first economically, then politically and, eventually, militarily.

The Great Depression and the fragmentation of the world economic order proved to be fertile ground for the growth of a particularly virulent strain of fascism: National Socialism. The consequences are well-known. World War Two, the Holocaust, tens of millions worldwide dead; for those involved, it was an apocalypse.

Today, it is becoming increasingly apparent that the economic lessons of these cataclysmic events are being forgotten. The current oil price war is just one more episode in a long line of events that indicate to us that the multilateral trading system carefully constructed in the years after World War Two is now breaking down.

The most obvious sign of this remains the simmering trade war conducted between China and the US. Since Donald Trump assumed power, he has taken US economic policy in a much more protectionist direction, imposing tariffs on Chinese goods. The Chinese retaliated with their own measures and the two nations have now imposed hundreds of billions of dollars’ worth of tariffs on each other’s goods.

Trade between the US and China underpins global economic growth and the new economic nationalism that has come to characterise their relationship imperils the world economy. But the blame cannot be placed on the US and China alone. The EU has long been a protectionist organisation, with strict tariffs and regulations imposed on many different imported goods. Now it looks increasingly likely to adopt more protectionist policies, as the EU Commission arms the bloc with “tougher sanction powers to respond with more force to potential new U.S. tariffs”. An EU/US trade war is on the cards.

With a potentially more protectionist EU and a tariff trade war rumbling on between the US and China, the world trading order could be on the verge of splintering into competing trading blocs, just as it did in the 1930s. China’s Belt and Road initiative appears to be an attempt to set up a Chinese lead regional trading order, while the way the US has courted Britain in the wake of Brexit could indicate that an Atlantic trading area emerges in competition with the EU. Russia too seeks its own trading bloc, although the Eurasian Economic Union appears to be faltering.

If rival trading blocs come to characterise the global trading order in the years ahead, it is a near certainty this will increase international political tensions, just as it did in the 1930s.

The similarities with the 1930s do not end there. Belief in democracy has declined and right-wing populism is growing. Military tensions are on the rise. Economic turbulence has returned and the world economy now stands on the brink of another crash. The international cooperation needed to mitigate against the consequences of this could prove very hard to come by.

Economic and political nationalism are fast becoming ascendant ideologies. The 1930s demonstrates that we are at a dangerous moment.

If you enjoyed this article, you might like my recent essay, Coronavirus: Lessons for Climate Action

To keep up to date with my future work, you can follow me on Twitter here or on Facebook here