On 20 March 2010 Iceland’s Eyjafjallajökull volcano erupted, resulting in a huge ash cloud that hung over northern Europe. More than 100,000 flights were cancelled and 8 million air travellers stranded across the northern hemisphere from Mexico to China. The International Air Transport Association estimated that airlines collectively lost $150m per day in revenues. With disruption persisting for several weeks, total losses ran into billions, with a short-term catastrophic effect on an industry already struggling. The chaos also caused problems for perishable goods sent by air.

Now we have another crisis on our hands. COVID-19 has already led to huge numbers of flights being cancelled. That has not only decimated international business travel, but the disruption to tourism is likely to be far longer and deeper than in 2010. The impact will be greater still on transport of goods by road, rail and sea freight. With liquefied natural gas prices already falling from rising supplies and mild winter weather, demand for shipping – which moves 80% of all the world’s goods – has tanked.

It is likely COVID-19 will prove to be an unexpected “Black Swan” event that will prick what was an over-inflated stock market, with the economic consequences being more serious than after the 2008 economic crash. Black Swan theory was developed by Lebanese-American statistician Nassim Nicholas Taleb to explain high-profile, hard-to-predict and rare events that are beyond the realm of normal expectations in history, science, finance and technology.

Black Swan events might be rare, but they do happen – so why have we not learnt from previous events? After all, over the past few decades, China has experienced two major public-health crises caused by disease outbreaks. In 2003, severe acute respiratory syndrome (SARS) led to almost 800 deaths within six months. Flights were cancelled, schools closed and large mass-gathering events were banned. SARS’ global macroeconomic impact was estimated at $30–100bn – $3–10m per case – with an estimated 1% drop in China’s gross domestic product (GDP).

A decade later, influenza A virus subtype H7N9 hit China and by December 2013 a total of 148 cases of H7N9 avian influenza were confirmed, resulting in 48 deaths. Unlike SARS there was no social chaos and reliable information was released promptly. The biggest economic impact was in the Chinese poultry industry, which suffered a loss of over 40bn RMB ($5.5bn), but there was little economic impact on global maritime transportation. SARS, in particular, highlighted global connectivity and the threat future pandemics present, but COVID-19 is set to have a much greater impact. World stock markets are crashing – down some 30% at the time of writing.

While current efforts are under way to forecast potential domestic and international virus spread, satellite imagery has already shown the tremendous impact it is having on industrial output in China. Correlation of industrial activity with gas output is a relatively new practice, but it can show how levels of economic activity has dropped. Carbon-monoxide output over parts of northern China, for example, has decreased from a peak of 3790 parts per billion (ppb) in late 2019 to an average of 790 ppb in early March. NASA, the European Space Agency and the US Department of Defense all say that they will continue to monitor the impact of COVID-19 on industrial output.

Changes ahead

The lasting economic impact of COVID-19 will be much greater than the immediate loss of trade and tourism resulting from the Icelandic eruption and SARS, but lessons should have been learned from those events about how vulnerable world economies are to breakdown in the global supply chain. For example, immediate travel restrictions should have been imposed at external and internal borders, with prompt recall of overseas citizens receiving mandatory quarantine on entry. Years should have been spent securing more local sourcing of goods where possible. This event may also finally force the Chinese government to ban the the sale of wild animal meat in certain open markets, as this is a known source of trans-species viral infections, or we may store up more of the same for the future, possibly even worse than the current outbreak.

A possible positive unintended consequence of the coronavirus could be the restoration of supply chains to national and regional manufacturing economies. However, since China’s huge population serves as the engine for our global oil-based economy, such a change of focus could prove significant and challenging to implement. Once COVID-19 is effectively defeated by lockdown, and ultimately by a vaccine, it will likely not be “business as usual”, with many changes ahead. The longer-term impacts on oil, trade, share prices and tourism remain hugely unclear.