10 Countries To Watch As Oil Prices Slump

Increased supply from oil exporting countries, greater energy independence in the US and stagnant global demand caused the price of oil to plummet from an average of $100 per barrel in June 2014 to $60 in December 2014. This price drop could have significant economic and political implications in the year to come.

Here are ten countries to watch in 2015:

1. Syria

A decline in oil revenue could force the Assad regime’s main backers – Iran and Russia – to curtail their financial and material support. As it stands, the Syrian government is “barely surviving economically” and will find it even more difficult to fight anti-government forces and threats from the Islamic State. The situation could pressure the Assad government to crumble under financial strain or make genuine political concessions to ease international sanctions.

2. Libya

In December 2014, militants attacked Libya’s largest oil port – Es Sider – and destroyed approximately 850,000 barrels causing worldwide oil prices to rise slightly. While Libya is a relatively small and unreliable oil producer, fluctuations in violence could continue to significantly impact prices in 2015.

3. Iran

Iran needs oil prices to remain at $140 per barrel in order to balance its budget. International sanctions have reduced Iran’s oil exports from 2.5 million barrels per day in 2011 to 1.05 million barrels per day in 2014. Decreased revenue from oil exports could pressure Iran to consider more flexibility in its nuclear negotiations and reduce financial support for Syria in return for sanction relief.

4.  Russia

Oil and gas revenues account for 45 percent of the Russian government’s budget and 68 percent of its export revenues. A decline in prices combined with international sanctions has caused the rouble’s value to halve against the U.S. dollar in 2014. Economists predict Russia’s GDP will contract by 4.5 percent in 2015. This scenario could pressure Russia to temper its financial support for Syria, open negotiations in Ukraine to relieve sanctions, and reduce its oil output in 2015.

5. Iraq    

In December 2014, Iraq exported 91.141 million barrels of oil, its biggest export month since 1980. However, revenues were significantly lower than the early months of 2014 due to the decline in oil prices. This created a significant problem for Iraq which relies on oil revenue for over 90 percent of its government funding. According to the oil ministry in Baghdad, the government “lost more than 27 percent of its projected revenues for 2014 because of the fall in prices”.  The prospect of financial strain could make the government’s battle with Islamic State more difficult and lead to increased violence and political chaos in 2015.

6. Venezuela

Venezuela relies heavily on oil to fund its government, with some figures estimating the amount is close to 96 percent. An increasing public debt and large budget deficit coupled with reduced government revenue spells disaster for the unpopular government of Nicolas Maduro. In 2015, Venezuela could default on its debts and experience major economic and political instability if oil prices remain at current levels.

7. Mexico

While Mexico’s economy is stronger than Venezuela’s, the decrease in oil prices forced its government to redraw its budget for 2015. Decreased spending on social programs, widespread protests due to the government’s involvement in killing 43 students and corruption allegations involving President Peña Nieto could spell political instability and diminish the federal government’s ability to govern effectively.

8. Nigeria

Nigeria would need prices to remain at $123 per barrel to balance its 2015 budget. Low oil prices could force cuts in government spending which will continue to inhibit Nigeria’s ability to fight Boko Haram in the country’s north and protect the Niger Delta from rampant oil theft and vandalism. With the expectation of contentious and potentially violent elections in February, low oil prices could make matters even worse.

9. Saudi Arabia

In 2015, Saudi Arabia will be able to ride out a sustained drop in oil prices due to its accumulation of foreign currency reserves. It is likely that Saudi Arabia will continue to apply pressure to non-OPEC members to reduce output ahead of the OPEC conference scheduled for June 2015.

10. USA

Lower oil prices will greatly benefit US consumers in 2015. This could represent a healthy boost to the economy because “consumer spending represents 68% of the US economy”. However, energy producers will suffer from reduced revenue which could cause companies to curtail operations. President Obama signalled his government’s discontent with OPEC’s unwillingness to control world oil prices by “easing… America’s 40-year ban on exporting crude” – a move that could continue to shift the geopolitics of oil production and make for a very interesting 2015.