By Martin Morris
Standard & Poor’s says in a new report that Bahrain, Saudi Arabia and Azerbaijan are the three oil-exporting countries most vulnerable to a fall in oil prices, due to the relative focus of their economies, exports, and revenue streams on hydrocarbons.
The report from the credit ratings agency ranks oil producing countries according to their vulnerability to oil price falls and takes into account the relationship between oil prices and a country’s economy, public finances, and external accounts.
Norway, Cameroon, and Mexico are seen as the least vulnerable to falling oil prices, according to the report, “Oil Price Vulnerability Rankings: Strongest to Weakest”, due to a lower structural dependence on oil in the economy and government revenues.
“The sharp fall in oil prices since mid-2008 has come as a welcome boon to oil-importing countries, but for oil-exporting countries the drop has been less welcome,” S&P credit analyst Farouk Soussa said.
“Some are facing dramatic declines in their fiscal and external balances in 2009, along with much less exuberant growth or even declines in their net asset positions compared with 2008. The results, however, should be viewed in the context of the wider economic and financial developments that continue to plague countries worldwide.”
A heavy concentration of economic activity in the hydrocarbons sector naturally tends to raise a country’s vulnerability to a sharp fall in oil prices.
Similarly, a greater concentration in exports of oil or gas products tends to render a country’s external revenues more vulnerable to falls in oil prices.
Countries where the state has near total control of the hydrocarbons industry, and therefore benefits most from the hydrocarbons revenues, are also those countries which tend to be most vulnerable to a fall in oil prices.
“The relative rankings in this score of Saudi Arabia (AA-/Stable/A-1+) and Cameroon (B/Stable/B) are an indication of the importance of other factors in determining sovereign credit quality, such as political stability, a country’s overall level of wealth, and the overall state of a government’s finances,” Soussa added.
“Indeed, the rankings highlight the absence of a direct correlation between the above oil vulnerability indicators and sovereign creditworthiness.”
Source: Arabianbusiness.com
