Last week, in a confusing pandemic twist, oil futures went negative. Global coronavirus restrictions have hit the oil sector hard, and the Russia-Saudi oil price war delivered a pounding. For the industry, the pain became particularly acute when the May delivery of U.S. oil came due — with nowhere to go and no one to buy it.

The rout began in February, when countries came to a standstill, engines turned off and fuel demand fell by 30 percent worldwide. As a result, West Texas Intermediate (WTI), the U.S. benchmark, hit a 12-month low of $45 per barrel. February’s oil collapse created bankruptcy fears for U.S. shale companies, which require prices above $50 to profit, and caused serious setbacks across global financial markets.

In early March, the OPEC+ alliance of OPEC members and add-ons such as Russia met to address the demand shortfall. For Saudi Arabia, the solution was simple: members must extend preexisting cuts to 1.5 million barrels per day to buoy prices. However, Russia objected, likely because its short-term pain of low prices could be offset by the long-term gain of putting the U.S. shale industry out of business.

Why is U.S. shale a threat?

Over the past decade, innovations in hydraulic fracturing spurred a “Shale Revolution” that rejuvenated America’s ailing energy sector, boosted output by 57 percent and created 600,000 new jobs. However, it also created serious problems for countries like Russia.

Increased U.S. production slashed oil prices, undercutting Russia’s most important export. In addition, it reduced America’s dependence on foreign energy. Having become the world’s largest producer in 2018, the U.S. could impose aggressive oil-related sanctions on Russia, Iran and Venezuela without fear of a reprisal that would starve U.S. energy needs.

However, this energy independence has a substantial weakness. Overproduction, high drilling costs and sagging demand make shale unsustainable. From 2008 to 2018, investors sank $400 billion into shale producers, without much profit. As investors began walking away in 2019, bankruptcies ballooned by 50 percent.

Russia played a waiting game

For Russia, the Saudi plan to cut output and lift prices would mistakenly revive U.S. shale. As a result, on March 6, Moscow refused and Riyadh retaliated — increasing output in order to drown Russia in unprofitably low prices and force its acquiescence. In short order, oil fell to $30 as neither side blinked.

By the end of March, prices plummeted further, hitting $19.85, an 18-year low. Although cheap oil is usually an economic stimulus, U.S. consumers could reap little benefit due to restrictions on movement related to the novel coronavirus pandemic. Moreover, the importance of U.S. shale, Wall Street’s exposure to it, and the jobs dependent on it meant the United States had a lot on the line in this race to the bottom.

As the oil shocks mounted, hurting electorally important energy states, President Trump attempted to mediate the Russia-Saudi dispute. On April 13, he announced a deal that would see OPEC Plus reduce output by 9.7 million barrels per day. The problem, however, was that demand had slumped by 20 million.

So why did oil futures turn negative?

With the underlying challenge — a dearth of demand — remaining in place, prices failed to rebound. At the same time, a new issue emerged in the trading of WTI, the U.S. benchmark.

Unlike stocks, which can be held for any duration, oil is traded in futures contracts, which expire on a specific day each month. Given that traders aim to profit on the commodity’s swings (not own the oil), in normal times they ultimately sell the contract to refineries and others who want it before buying the next month’s contract, what’s called “rolling” futures. However, if no one wants the oil, there’s a crisis.

This is what unfolded on April 20. Traders were caught flat-footed before the April 21 expiration of WTI’s May delivery contract. If the contract holders couldn’t find buyers, they would have to receive 1,000 barrels in Cushing, Okla. With storage capacity filling up and with the impossibility of holding the toxic stuff on one’s own, traders sought to get the oil off their hands, even paying people to take it. In the process, WTI went negative for the first time in history, settling at -$37.63 last Monday.

What happens now?

The upside of oil’s downturn is that scientists have logged substantial reductions in consumption and emissions across the world. An important reminder also emerged. Behavioral changes, environmental regulations and green alternatives can turn oil wealth into “stranded assets,” worth next to or even less than nothing — giving renewed encouragement to diversify energy profiles before the hit to jobs and investors becomes too great.

However, there’s reason to worry, and not just for the traders in the red. North Dakota’s oil industry laid off 2,000 workers and another 100,000 oil-related jobs in Texas are at risk. The $209 billion shale companies owe, maturing by 2024, is likely to make many more unemployed.

What’s more, oil-dependent countries in the developing world will feel the brunt of this collapse. The problem is that governments often operate off “fiscal breakeven points,” the oil price required to balance budgets.

Nigeria, for instance, based its 2020 budget off $57 per barrel of Brent, the global benchmark. Today, Brent is about $20 and Nigeria’s own benchmark, Bonny Light, has dipped below $17. As oil accounts for 70 percent of Abuja’s revenues, the situation threatens to undermine essential services — a frightening prospect during a pandemic. Similar shortfall concerns exist in Angola, Venezuela and Iraq, among others.

Uncertainty surrounds the oil markets, the coronavirus outbreak and the politics of both. Although the eventual recovery is liable to kick consumption into high gear, the difficulties the oil industry and oil-dependent countries face now are daunting. As budgets crumble, bankruptcies continue and layoffs surge, it is unclear how much pain can be endured.

The greatest unknown, however, is the effect on the energy sector. With the benefits of reduced emissions put into ever-plainer sight, and with the oil industry struggling to survive, there is good reason to expect that governments will try to maintain recent environmental gains as the markets’ “creative destruction” inaugurates a new era of green transformation.

Stephen Paduano (@StephenPaduano) is the executive director of the LSE Economic Diplomacy Commission and a doctoral researcher at the London School of Economics.