Since June 2014, global oil prices have dropped by more than 50%. The drop could strongly affect the economic and political stability of these five oil exporting countries.
Oil prices make winners and losers. In general, oil importers will gain from low prices, while most oil exporters will suffer. Still, there are differences. While the United States, Norway, and the Gulf states can protect themselves with diversified economies and high hard currency reserves, the oil shock could bring some countries to the verge of economic default and political crisis.
Venezuela entered the period of low oil prices with an already frail economy ruined by the more than a decade-long socialist regime of Hugo Chavez and his successor Eduardo Maduro. The oil price slump significantly worsened the country’s already failing economy.
More than 90 percent of Venezuela’s exports and hard currency reserves depend on oil, and with the price of oil 50 percent down, the country is close to a default.
Standard & Poor’s is the last in a line of rating agencies that downgraded Venezuela’s credit rating to junk status, and the country’s currency is experiencing a constant devaluation trend. At the same time, inflation is expected to rise to 200 percent this year and the economy to shrink by 7 percent.
Consequently, the Maduro government is forced to cut subsidies introduced by the Chavez regime, and to liberalize the economy in accordance with the global realities in the oil markets, which could not only cause strong economic shocks and public outcry, but also trigger a swift regime change.
Africa’s largest economy is under increased pressure after the sudden drop in oil prices in the last eight months. This is the second blow for one of the continent’s largest oil exporters, after the shale boom virtually brought to a halt its oil exports to the United States.
The country’s budget breakeven price of oil for 2015 is $122, according to Deutsche Bank estimates. Moreover, oil exports constitute more than 70 percent of Nigeria’s budget income and 90 percent of its foreign exchange.
As a result, the Nigerian naira has lost the fifth of its value against the US dollar since June 2014. In addition, security instability caused by the Boko Haram campaign in the predominantly Muslim-populated north of the country and the political turmoil ahead of the presidential elections expose bitter divisions along the ethnic and regional lines that could further destabilize the country.
Iraq is particularly affected by the oil prices slump, as the country is struggling to bring its oil production to pre-war levels, rebuild the war-torn country and wage a new war against the Islamic State.
The country’s finances depend exclusively on oil exports, and oil price volatility strongly affects its economy. At the moment, Iraq is effectively increasing its oil production in order to offset the slump in oil prices.
The country’s oil production currently stands at around 4 million barrels per day, and is expected to rise by additional 550,000 barrels. However, despite the recent budget revision tailored to a $56 per barrel price, the fiscal deficit for 2015 is still forecast at $22 billion.
Following the improvement in relations between Baghdad and the Kurdish autonomous region, along with the improved situation since the removal of Prime Minister Nouri al-Maliki last August, the political and security situation has made a significant turn for the better in recent months.
Nonetheless, the fight against ISIS, which holds great swaths of Northern Iraq, and continuous friction between Iraq’s political factions is draining the country’s finances and threatening its political stability.
Russia is a politically stable country, and the Putin regime enjoys unprecedented levels of public support. The country’s hard currency reserves are at high levels, and the Russian oil industry is more resilient to oil prices volatility compared to its international peers. Thus, Russia will not see major political upheavals in the short term.
On the other hand, the oil shock and Western sanctions have hit the Russian economy and its consumers hard. The country’s economy has been under strong pressure since the introduction of sanctions almost a year ago, and the oil price drop only added to the pain, as the Russian 2015-2017 budget draft is based on the $100 per barrel price.
Inflation is currently at 17 percent, the rouble slumped by 44 percent in the past 12 months, and the economy is expected to shrink by 3 percent in 2015, according to an IMF forecast.
In the long run, with Russia expected to continue to wage war in Ukraine and consequently suffer from an additional set of Western sanctions, along with a prolonged period of low oil prices, both the economic and political situation in the country might deteriorate.
Iran has been a major victim of both the ban on oil exports imposed by the international community and falling oil prices.
Years of international isolation have taken a toll on Iran’s economy, but the sudden drop in oil prices is threatening to plunge the country into a full-blown recession. This will have a direct impact on the general population, already impoverished by the years of sanctions, as well as on investment into Iran’s tarnished infrastructure.
Although it is unlikely that the low oil prices will affect the stability of the regime in Teheran, the current situation, in the midst of the nuclear programme negotiations, might stir the debate between liberals and conservatives within Iran’s leadership over the future course of the country and its relations with the international community.