Yemisi Izuora
The International Energy Agency has warned that the collapse in oil prices threatens to cut the revenues of “vulnerable” producing countries by up to 85 per cent, as the coronavirus pandemic slashes demand and Russia and Saudi Arabia increase supplies.
The Paris-based agency said that countries such as Nigeria, Ecuador and Iraq would be particularly hard hit by the price slump, and said the International Monetary Fund, IMF may need to be prepared to intervene as collapsing revenues threaten their ability to respond to public health crises.
“If prices remain at these levels around $30 a barrel we see the income for the vulnerable producer countries will fall by between 50 and 85 per cent,” said Fatih Birol, chief of the IEA, warning that collectively the most vulnerable oil producers were facing the lowest revenues in two decades.
“International financial institutions may need to step in and take special measures.”
The IEA said that other OPEC, members, such as Algeria and Angola, were also at risk because of their high dependence on oil and gas revenues. That poses the risk of a growing split within the cartel, as Saudi Arabia the 13-member group’s largest producer has said it will ramp up production in a fight with Russia for market share.
The two oil powerhouses disagreed earlier this month over how to respond to the coronavirus crisis, which threatens one of the biggest drops in demand ever seen in the oil market as flights are cancelled and commuting falls dramatically in Europe and North America.
The IEA and OPEC, took the rare step of producing a joint statement on Monday expressing their mutual concern, saying that the price collapse from $70 a barrel in January would probably “have major social and economic consequences, notably for public sector spending in vital areas such as healthcare and education”.
The IEA said in a special report on the crisis that many countries were less well prepared to respond to crude’s slump than the previous time prices fell sharply in 2014.
Iraq will face a monthly $4bn budget deficit even to meet civil servant salaries and pensions and is likely to face further pressure on its health service, while Nigeria’s economy is less prepared to tackle a “price shock” than five years ago, as per capita GDP has shrunk by almost a third.
Oman, one of the largest Middle Eastern producers outside OPEC, could struggle to defend its currency’s peg against the US dollar, Mr Birol said, and will probably need to draw down on foreign currency reserves.
Ecuador, where the government has already had to scale back spending, was likely to be one of the hardest hit, the IEA said, with oil and gas revenues expected to decline by 85 per cent.
