The global oil price rout has left many oil producers reeling across the world. From Canada to Norway, Saudi Arabia to Russia, none of the world’s largest oil exporters have been spared from oil prices that declined 45 per cent last year alone.
While some of the biggest producers will stumble along, five oil-producing economies are on the verge of collapse if oil prices do not stabilize soon, according to RBC Capital Markets.
“There are five sovereign producers that are on the precipice of a major crisis amid the current low oil price environment,” Helima Croft, global head of commodity strategy, said in a report.
These countries face a mix of social, political and terrorism-related upheavals that could either lead to a regime change or create great instability that could knock out their oil production, leading to an oil-supply shock.
“Our ‘fragile five’ states…were already facing severe political and security challenges when oil prices were above $100/bbl and the situation has grown far more grim as these countries have struggled to fund their state apparatuses and provide essential services,” Croft wrote.
Here are the five countries most vulnerable to a protracted oil downturn (in alphabetical order):
The Algerian government is struggling to develop a new economic plan after its foreign reserves declined US$35 billion last year to US$143 billion, while the fiscal deficit nearly doubled to 16 per cent of GDP on lower hydrocarbon revenues.
“Algeria faces important challenges, with the large decline in oil prices expected to be sustained over the medium term. In response, the authorities have begun to undertake fiscal consolidation and implement selected reforms,” the International Monetary Fund said in a report. “These efforts need to be intensified.”
The OPEC member produced 1.11 million barrels per day in February.
High oil prices are a key tool for the regime led by Abdelaziz Bouteflika to control its restive population and rule the country with an iron fist. In the past, the government has paid lip service to economic and social reforms, but a continued crisis may force the government to loosen its tight grip on the economy.
“Algeria is also facing renewed terrorist threats, as evidenced by the recent Al Qaeda rocket attack on the Krebcha gas plant, which prompted BP and Statoil to withdraw its Algerian based staff,” RBC said.
Oil breakeven price: US$114.8 per barrel
Iraq is one of the few countries in the world that can raise crude oil production significantly.
The country produced 3.99 million bpd on average last year and could see production exceeding 4.22 million bpd this year, according to the International Energy Agency estimates.
The country’s oil production has been resilient despite a war raging in neighbouring Syria and ISIS terrorism activities in the north of the country, which has displaced nearly four million people.
“Northern Iraqi exports are increasingly at risk due to trouble in neighbouring Turkey, as well as dysfunctional Iraqi political dynamics,” Croft said in the report.
While most analysts believe that Iraq’s oil infrastructure in the south remains well-protected, the country faces a political crisis.
The country’s real GDP contracted by 2.1 per cent in 2015 owing to the conflict, destruction of infrastructure and assets, disruptions in trade, and deterioration of investor confidence, according to the IMF.
“Iraq needs to put its economic house in order, reducing waste of precious resources, strengthening accountability, and undertaking important, necessary reforms,” Jim Yong Kim, World Bank Group president said in a speech in Baghdad earlier this month.
Oil breakeven price: US$77 per barrel
Libya’s oil production of 1.6 million barrels before 2011 has now contracted to just around 460,000 barrels per day, as various factions seek control of the country. A civil war has decimated the oil and gas industry, and the country’s GDP is set to fall to US$42 billion this year, compared to US$72 billion in 2012.
“Fighting between militias is growing, while terrorist groups such as ISIS and Al-Qaida have gained a stronger presence in the country and growing numbers of refugees are fleeing across the borders,” said the Institute of International Finance.
Oil breakeven price: US$68.8 per barrel
RBC also raised concerns about Nigeria. The country produces around 1.90 million bpd, but as much as 15 per cent of output remains offline.
“In fact, the government appears to be on course for a head on collision with armed militants in the oil region,” RBC said.
Assailants damaged a 250,000-bpd underwater pipeline linked to a Royal Dutch Shell Plc. facility, rendering it idle and exposing the fragility of the country’s energy infrastructure.
“Nigerian production has been slowly grinding lower over recent years, even absent acute outages due to natural declines, and this will be compounded over the next several years given the number of shelved projects,” RBC said. “The significant risks posed by the political, security, and economic risks mounting only adds to these falls in production.”
Oil breakeven price: US$122.70 per barrel
Venezuela’s economic meltdown belies its status as the world’s largest holder of crude oil reserves. The country, which has stopped releasing basic economic data on a timely basis, was set for a 10 per cent contraction in GDP last year, according to the IMF. Another 6 per cent economic decline was on the cards this year, the IMF estimated in a report last year.
Venezuela, which produced 2.37 million bpd last month, suffers from electricity and water shortages and has a dearth of basic medical and food supplies, as President Nicolas Madura’s party has failed to contain the damage from decade-low crude oil prices.
In addition, the country’s inflation rate is expected to skyrocket to 720 per cent this year, according to the IMF. The country’s central bank admitted last year’s inflation rate was at 180 per cent.
While the country was broken even before the oil price decline, Venezuela needs much higher oil prices to avoid a complete economic meltdown.