Oil prices in the global market plunged drastically, dragging the economy in the Middle East to an unavoidable economic crunch.
The novel coronavirus pandemic, otherwise known as COVID-19, has weakened the oil consumption in the past few weeks. With almost the entire world in quarantine, petrol has not been in demand as it used to be. To add ‘fuel to the fire’, tensions between Russia and Saudi Arabia has contributed to the continuous price fluctuation of crude oil under $30 for every barrel.
Since March 6, The Organisation of the Petroleum Exporting Countries including Iraq, Kuwait, UAE, and Qatar, as well as other non-OPEC nations, have not come up with an output curb agreement yet. The MENA (the Middle East and North Africa) region have started to feel the adverse economic effects low oil prices have on their economy. With crude oil as their primary export, they will need higher rates on oil to balance government funds.
The leading credit rating and analysis agency, Fitch Ratings, have analysed how certain countries should balance budgets to prevent massive losses. Accordingly, Nigeria should price $144 for every barrel of Brent crude – a break-even price to balance their government’s budget this year. Bahrain, likewise, should put the value per barrel at $96.
Fitch Ratings also said that Saudi Arabia – the world’s largest exporter of crude oil – should set a break-even price per barrel at $91. Other Middle Eastern countries such as Oman, Abu Dhabi, and Qatar should all set per barrel pricing at $82, $65, and $55 respectively.
To balance 2020 government funding, Algeria must set a break-even price per barrel of Brent crude at $109, suggested Paul Taylor, the CEO of Fitch Ratings. On the other hand, data from the International Monetary Fund (IMF) recommended a $55 break-even price per barrel for Angola, and a $70 per barrel price for the United Arab Emirates (UAE).
Other OPEC members such as Libya and Venezuela required an estimated break-even price of $100 to balance government funds. Iraq, additionally, needed $60 per barrel, while Iran needed $195 a barrel.
Non-OPEC members such as Mexico, Kazakhstan, and Russia will need a break-even price per average Brent crude barrel of $49, $58, and $42 correspondingly for balancing government budgets.
The International Institute of Finance (IIF) said leading oil-producers in the Middle East and North Africa (MENA) region would most likely have lower GDP rates or economic growth this year. The decrease in oil prices would be to blame.
Accordingly, the projected economic growth expectation for 2020 has decreased. Saudi Arabia, which was initially forecasted to grow by 2 per cent in 2020, has been cut to 0.7 per cent. Kuwait, similarly, has been rated now at 0.8 per cent compared to the 2.8 per cent growth expectation previously anticipated. UAE went down from 1.9 per cent to 0.6 per cent.
Iraq’s economic growth expectation has also decreased with a 0.3 per cent rating – a far cry from the previous 3.2 per cent. On the other hand, Iran will expect a 5.1 per cent shrink from a promising 8.4 per cent.
IIF warned oil-producers in the MENA region that if oil prices average at $40 per barrel throughout the year, a decline of $192 billion in total hydrocarbon earnings could be imminent.