- · Losses in fiscal revenue by more than 10% of GDP for most exposed sovereigns
· Large sovereign assets will provide a degree of resilience for some
The severity of the credit impact from lower oil prices on oil- and gas-producing sovereigns will vary from country to country, driving divergence in their creditworthiness, Moody’s Investors Service said in a report.
The coronavirus outbreak’s squeeze on global oil demand and breakdown of the OPEC+ agreement earlier this month have created a deep, albeit temporary, shock to oil prices.
“We don’t currently see the oil price decline as the outcome of a structural shift in the oil market, and fundamentals support our medium-term oil price assumption of US$50-US$70 per barrel,” said Alexander Perjessy, a Moody’s Vice President–Senior Analyst. “However, in light of recent shocks, we have revised our assumptions for 2020 and 2021.
“The sovereigns most vulnerable to lower oil prices in 2020-21 are those with the highest reliance on hydrocarbons as a source of fiscal revenue and exports, and limited capacity to adjust.”
Moody’s estimates that fiscal revenue and exports will decline by more than 10% of 2019 GDP in 2020 in Iraq and Kuwait compared with the rating agency’s previous projections, in the absence of any adjustment such as an increase in oil output.
In Oman, Qatar, Azerbaijan, Saudi Arabia, Republic of the Congo and Bahrain, the fall will be 4%-8% of GDP. The decline will be smaller, at less than 3% of GDP, in Russia, Kazakhstan, Trinidad and Tobago, Nigeria and Gabon.
The most vulnerable sovereigns are Oman, Bahrain, Iraq and Angola, where external vulnerability is high and capacity to adjust to the shock is limited. By contrast, stronger fiscal positions ahead of the shock buffer the credit implications for Qatar, Russia, Azerbaijan, Kazakhstan and Saudi Arabia. And robust sovereign balance sheets will support Qatar and the United Arab Emirates, and – to a lesser extent – Kuwait, Azerbaijan, Kazakhstan and Saudi Arabia.
The price of Brent crude oil has plunged more than 60% since the end of 2019 to around US$26 per barrel as of 18 March 2020, as the spreading coronavirus outbreak curbs global oil demand and as the breakdown of the OPEC+1 agreement on 6 March 2020 has prompted several major oil-exporting countries to announce sharp increases in oil production.
Although, at this time, we do not see the oil price decline as the outcome of a structural shift in the oil market, and fundamentals support our medium-term oil price assumption of US$50– US$70 per barrel, we have revised our assumptions for 2020 and 2021 down to US$40- US$45 and US$50- US$55, respectively, in light of these shocks. The risks to these short-term projections are skewed to the downside.