Oil Price Dynamics: Economic Risks in the Middle East and Africa
Energy market dynamics will generate sizeable economic headwinds for the Middle East and Africa (MEA) in 2020. Many of the region’s governments rely on hydrocarbons’ revenues, and the low oil price environment will drive widening fiscal and current account deficits, currency pressures, and contracting economic growth.
COVID-19’s impact is suppressing global oil demand, which fell by 29% in April 2020, estimates the International Energy Agency.
The global oil market faces both demand- and supply-side pressures, meaning that market volatility and suppressed prices are likely to persist throughout 2020.
The macroeconomic pressures facing oil-exporting nations are acute, as government revenues fall.
Fiscal dynamics will be particularly strained, with most governments modelling their 2020 budget on higher crude oil prices.
According to Marsh JLT Specialty’s World Risk Review ratings, 96% of MEA countries’ economic risks increased between January and May 2020.
As shown in Figure 1, some of the largest score changes were seen in oil-dependent economies, such as Congo, Saudi Arabia, Nigeria, and Iraq — reflecting the challenging conditions these markets face. Eight of OPEC’s 12 MEA members feature in the 25 MEA countries with the largest score changes.
Weakening macroeconomic fundamentals are also feeding into rising sovereign credit risks. Ratings agencies have downgraded a number of sovereigns in the region (see Figure 2), in some cases reflecting the twin impacts of COVID-19 and low oil prices.
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