Because of COVID-19, the world economy lost at least 4.5% of annual GDP – almost $4 trillion. The 2020-2021 pandemic showed how easily and unpredictably a single event can affect the economy. And the more globalized the world is, and countries are linked by trade, the greater the magnitude of the consequences.
We found and broke down 4 more examples where an unpredictable situation had a serious impact on the economy of an entire country or even the whole world.
#1. The Ever Given ship in the Suez Canal
What happened: On March 23, 2021, the Ever Given ran aground in the Suez Canal and blocked the Suez Canal completely. The container ship was en route from Malaysia to the Netherlands and blocked for nearly a week the canal through which 12% of the world’s trade passes.
Ever Given ran aground due to weather conditions and a mistake by the captain. While a flotilla of tugboats tried to move the container ship, 450 merchant ships were waiting to “free” the Suez Canal.
Some of the ships had to sail around Africa to get to Asia. In addition to the lost time, they all spent an extra $400,000 on fuel to make such a journey. Here is what that route looked like:
The economic consequences: the Suez Canal management company lost $95 million in 6 days, and the total value of the “blocked” goods was $9.6 billion a day. Each hour of delayed ships cost the world trade $400 million in revenue.
Since the Suez Canal is the only shortest route from Asia to Europe, all oil from the Persian Gulf passes through it.
As of 2020, 1.74 million barrels of crude oil were transported through the canal every day out of a global total of 39.2 million. So the very news of the route’s blockage raised global prices for the black gold by 2% – with many oil tankers coming from the Persian Gulf stranded in the Suez Canal. No one knew when Ever Given moved, there was less oil. Prices rose, although they had fallen precipitously for 3 weeks prior to that due to lockdowns. In 6 days of “downtime,” the cost of shipping petroleum products by sea had doubled.
After almost a week Ever Given was able to get off the ground – it took a couple of days to restore the usual shipping mode. Following the news of the canal’s unblocking, oil prices fell. The Suez Canal Authority had to double its throughput capacity – during the first days 100 ships a day passed through it with the help of tugs. Now enterprising Egyptians have started selling tickets to the place where the Ever Given ran aground – a real tourist attraction.
#2. Hurricane Katrina in the U.S.
What happened: In August 2005 Hurricane Katrina hit the southern states of Louisiana, Texas, Florida and Mississippi, the most catastrophic hurricane in the United States and the 6th most destructive in the history of Atlantic observation. Wind speeds reached 280 km/h.
As soon as the hurricane reached the coast, the first casualties appeared almost immediately: a total of 1,600 people were killed, and 400,000 people in New Orleans were completely flooded. About 1 million residents were left without electricity and telephone service.
For about 2 weeks different parts of the city were under water – and New Orleans was swept by a crime wave. The region was already considered one of the poorest and most insecure in the United States, and Katrina exposed its problems. Looters looted flooded homes and stores, and the murder rate reached a record 93 people per 100,000 – New Orleans was on par with the most dangerous cities in the world.
The fact is that shortly before Katrina arrived, Louisiana, Texas, Florida and Mississippi were evacuating local residents because of the threat of a major hurricane. Almost everyone with a car left the cities. Only the poorest people who had no private transportation or other means to leave were left to meet Katrina.
The economic impact: the hurricane didn’t just hit the southern states, it affected the entire world – after all, the oil and cotton industries of America were concentrated in this very area. But at the same time, the region was considered one of the least prosperous in the United States in terms of living standards. Katrina only exacerbated the situation. Here’s how the hurricane affected the economy:
- A 30 percent increase in unemployment. In Louisiana, 12% of residents (214,000 jobs) lost their jobs; in Mississippi, 23%. At the same time, of the 1.5 million people who moved, 600,000 never returned home.
- Insurance losses of $40 billion. For U.S. insurance companies, the number of claims was the largest in the history of the industry.
- Rising oil, gasoline and gas prices. Before the storm, the region produced 29% and refined 47% of all U.S. oil. The day after the storm, production of black gold was stopped completely. Because of that, oil prices in the USA went up to a record high of $70 a barrel and wholesale prices on international markets went up by 5%. Ten months after the storm, annual oil production was still 30% less than before Katrina.
- The collapse of the entertainment industry. Before the disaster, more than 14,000 people worked at casinos on the Gulf Coast. After the hurricane, tax revenues from casino gaming in Mississippi dropped by $ 500 thousand a day. This continued until the new crisis in 2008.
- The nation’s GDP dropped to 1.8 percent. For comparison, in the year before the hurricane, the U.S. economy was growing at a rate of 4.2%.
- Damage to the timber industry in southern Mississippi. This industry accounted for 10% of all jobs in the state. The hurricane damaged more than 5,300 km2 of forest.
#3. The Spanish flu pandemic of 1918-1920.
What happened: In the spring of 1918, an epidemic of unknown influenza began in the American state of Arkansas. The disease got its name because it was the Spanish newspapers that were the first to sound the alarm. There were three waves in all, but the deadliest was the 1919 epidemic.
The disease affected young people, and the mortality rate averaged about 15% – in different countries it ranged from 3 to 20%. These were the last years of the First World War: many people in Europe were in conditions of complete unsanitary conditions, lacking food and drinking water.
In the rest of the world, the situation was even worse. In Samoa, an island nation in the Pacific Ocean, the Spanish flu killed 20% of the population, in Spain 12%, in the United States 7%. In India, the disease took 18 million lives, the same number as in World War I. During the whole time 40 million people became victims of the pandemic – 2% of the total population of the Earth.
Economic impact: In the 1920s, there were still few statistics. And that made it very difficult to calculate the real damage caused by “Spain” to the world economy. Many of the data that researchers now have are taken from newspapers – they were then the main source of news. Here is some of that data:
- On average, in every country after the pandemic, real GDP fell by 6 percent and consumption of goods and services fell by 8 percent. A similar situation was later seen during the 2008-2009 crisis. Meanwhile, U.S. GDP, to everyone’s surprise, fell only 1.5%.
- Sharp declines in stock returns and government bonds. In the early twentieth century, securities were in great demand in the U.S. and Europe, they were considered a major investment, even for not very wealthy residents. And during the pandemic, stocks lost their importance because of inflation and a decline in economic activity – security holders were impoverished by an average of 26 percent.
- Production declined by 18%. In the U.S., the most industrialized country in the world at the time, plants and factories in some states effectively ceased operations due to quarantine. As in 2020-2021, people were urged to avoid pandemonium and stay home. The statistics bear this out: grocery stores lost 30% of their revenue and department stores and retail outlets lost about 70%.
- The Great Depression of the 1930s. The “Spanish Flu” pandemic contributed to a major financial and economic crisis. The fact is that after World War I, just in 1918-1920, the U.S. was booming economy – the military industry was developing and brought crazy profits. The flu outbreak halted this process for a few years and led to a recession.
#4. Explosion on an oil production platform in the Gulf of Mexico
What happened: In 2010 there was an explosion on a British Petroleum oil platform in the Gulf of Mexico. There was a fire that killed 11 people and injured 17 others. The well could not be extinguished for 4 months until all the fuel had burned out. Every day up to 1000 tons of black gold spilled into the sea and an oil slick of 1000 square kilometers formed on the water surface. It was the largest ecological disaster in the region.
It took 9,700 ships, 127 aircraft, 47,829 people and 89 days to stop the oil spill in the Gulf of Mexico. The cause of the explosion was the company’s savings on maintenance of the platform.
Economic impact: The damage from the Gulf of Mexico disaster is estimated at $37 billion. In addition to environmental damage, the oil spill affected many other aspects of the U.S. economy and the rest of the world:
- America’s maritime industry was hit. The industry lost an estimated $8.7 billion. This includes the loss of 22,000 jobs, reduced fishing revenues, and the closure of restaurants and cafes on the coast. About 40 percent of the Bay Area has been banned from fishing of any kind.
- Rising unemployment. In the southern states, about 150,000 people formerly employed in the fishing, oil production, and restaurant businesses lost their jobs.
- An immediate increase in gasoline prices in the U.S. (by 50 cents).
- The introduction of a temporary moratorium on black gold production in the Gulf of Mexico. The core business of oil companies was threatened. Canadian, British and American private businesses expressed their protest, because the moratorium effectively paralyzed their work. In addition, 24% of all U.S. oil was produced in this region.
- Economic losses in the sphere of tourism were $23 billion. On the coast of the Gulf of Mexico were concentrated many hotels which went bankrupt after the accident. Tourists did not want to rest in waters full of oil.
- British Petroleum stocks shot down 50% – during just half a year, the largest oil company of the world lost $105 billion. Accordingly, BP stockholders in different countries also suffered losses.