{"id":107,"date":"2025-11-01T16:14:17","date_gmt":"2025-11-01T12:44:17","guid":{"rendered":"https:\/\/asgarzade.sitedar.com\/yancotrd\/en\/?p=107"},"modified":"2025-11-01T16:14:34","modified_gmt":"2025-11-01T12:44:34","slug":"oil-producers-dig-into-savings-amid-fiscal-deficits","status":"publish","type":"post","link":"https:\/\/yancotrd.com\/en\/2025\/11\/01\/oil-producers-dig-into-savings-amid-fiscal-deficits\/","title":{"rendered":"Oil producers dig into savings amid fiscal deficits"},"content":{"rendered":"

Today many of the world\u2019s major cities remain under lockdowns while their respective government is implementing work-from-home schemes. This has dramatically reduced the number of cars on the streets and cut the demand from the transportation sector.
\nWith WTI hovering around $10 and Brent on $20 a barrel, oil-producing nations are feeling the pinch.
\nWhen planning their annual budget no government predicted such a bleak situation and oil-producing nations planned their budgets on higher than real prices, as a result, they are facing fiscal deficits.
\nGlobal oil demand for oil is down by as much as 30 million barrels a day, a 30 percent reduction.
\nIMF predicts West Asian economies to contract this year. \u201cVulnerabilities are high in certain countries\u201d with \u201chigh levels of unemployment and low growth,\u201d said Jihad Azour, the IMF\u2019s Middle East and Central Asia director.
\nMost nations are turning to their state-owned investment vehicles commonly referred to as the Sovereign Wealth Fund (SWF) designed to buffer oil price shocks. Today\u2019s situation shows the need for economic diversification among oil-producing nations.
\nThe private oil producers, on the other hand, are either shutting down or reducing production levels and freezing new drilling projects for the time being.
\nIn the Islamic Republic, a fund called the National Development Fund of Iran (NDFI) was founded in 2011. SWF\u2019s real assets are not officially declared and in this piece, I will quote news agencies and other unofficial sources.
\nNDFI is reportedly worth $91 billion. On April 6, Iran\u2019s Supreme Leader Ayatollah Ali Khamenei approved the withdrawal of one billion euros from NDFI to help fight the coronavirus epidemic.
\nThe funds will be used for revamping the funding needs of the overstretched health care system and the unemployment insurance fund. President Hassan Rouhani has thanked the leader for his move on his website and added that the needs will preferably come from domestic products and knowledge-based companies.
\nHowever, the US sanctions have eroded the country\u2019s dependence on oil exports.and the impact of the oil price shock will be minimal. Prior to the re-imposition of US sanctions in May 2018, Iran was exporting 2.5 million barrels a day. By most estimates today Iran exports less than 200,000 barrels a day.
\nRouhani has said that Iran will not suffer as much as other countries from the oil price plunge as it is less reliant on crude exports. \u201cThe more countries rely on oil, the greater they suffer. But as our reliance on oil income has decreased, willingly or unwillingly, either by our own will or by the imposition of the enemy, our losses will certainly be less,\u201d Rouhani said during a televised meeting.
\nIran\u2019s budget for the present year (started March 20, 2020) has been planned with the expectation of export of one million barrels a day with an oil price of $50. This aspect of the budget needs to be revisited due to the extraordinary circumstances created due to the novel coronavirus outbreak.
\nIMF has warned Iran could face an $18 billion trade deficit in 2020 due to a lack of exports, which could worsen if oil prices stay low.
\nRussia<\/strong>
\nRussian newspaper Vedomosti reported last week that a barrel of Russia\u2019s Urals oil, where the price is determined by Brent, not WTI, was trading at $8.48 a barrel, the lowest since 1998. The current Russian budget is calculated at an oil price of $42 a barrel.
\nTwo-thirds of Russia\u2019s export earnings and 40 percent of its budget is generated by oil sales.
\nEarlier this year the Russian Finance Ministry announced Russia could withstand prices as low as $25 a barrel for up to 10 years by drawing on a $150 billion National Wealth Fund to compensate for shortfalls of the fiscal budget. Russia\u2019s NWF has risen to $151.35 billion after the Finance Ministry channeled extra oil and gas revenues from 2019 to it, Reuters quoted the ministry in March.
\nApart from low oil prices, Russia has to deal with the sanctions imposed by the US and EU five years ago with Moscow\u2019s annexation of Crimea in March 2014. The sanctions prohibit long-term financing for some major corporates and ban assistance to Russian oil and gas companies for the Arctic, shale, and offshore projects.
\nDuring an annual press conference last month, Russian Prime Minister Vladimir Putin said while there was \u201cnothing good about [sanctions]\u201d but \u201cOur economic \u2013 I can say this with full responsibility \u2013 has been able to adapt to external shocks, while our national currency has actually become much more stable, even with possible energy price fluctuations.\u201d
\nRussia responded to sanctions in three ways: First tighten the belt, cutting public spending, and forcing banks and major corporations to clean up their balance sheets. Second, it spent trillions of roubles to create domestic substitutes for imported goods, while food imports from the EU were banned to stimulate local production. Third, some income from energy exports diverted to national wealth fund, thanks to the steady rise in oil prices since 2014 Russia saved up to $124b in sovereign wealth fund (seven percent of GDP).
\nThe results have been impressive. All the three levels of Russia\u2019s government ran a budget surplus in 2018 and 2019, and its total public debt is about 15 percent of GDP. The EU average is 80 percent.
\nSanctions have hampered FDI from an annual average of $54.5b between 2011 and 2013 to 19.2b between 2015 and 2018.
\nSaudi Arabia<\/strong>
\nSaudi Arabia\u2019s fiscal revenues are projected to decline by 25 to 30 percent or about eight percent of the GDP this year impacting fiscal deficits, according to rating agency Moody\u2019s. IMF\u2019s latest World Economic Outlook report has forecast a negative 2.3 percent GDP growth for Saudi Arabia in 2020.
\nProducing 13 percent of world output Saudi Aramco is the world\u2019s largest oil producer. Since there is no way to audit any information coming out of Aramco, the world is left to guess the actual breakeven cost. According to IMF March 9 report, the fiscal breakeven price of Saudi crude is around $80 per barrel.
\nSaudi Crown Prince Mohammed bin Salman\u2019s \u201cVision 2030\u201d will need to be shelved for delays amid low oil prices, political instability in light of the recent crackdown by MBS amid a coup threat within the Saudi royal family and high unemployment amongst its youth.
\nSuch instability does not encourage FDI and can put the Aramco IPO on hold for longer.
\nFounded in 1971 the Public Investment Fund (PIF) Saudi Arabia\u2019s SWF, with estimated assets of $320 billion. Instead of bracing for a shock, the Saudi SWF went on a spending spree recently. Last week it built a $200 million stake in Norway\u2019s largest crude producer Equinor. In the past, PIF has bought shares in Uber and Telsa, as well as European oil firms Royal Dutch Shell, Total, and Eni.
\nSaudi Arabia\u2019s oil industry accounts for 70 percent of the country\u2019s export earnings and half of GDP. According to Forbes magazine, Saudi Arabia has approximately $500 billion in the SWF and the Saudis have the cash to ride out the low oil prices. With oil at the present price, hovering less than $10 a barrel the kingdom is set to take a loss of $40 billion annually from total revenues.
\nWith over one million people employed in its oil industry, the government will have to increase spending from its SWF. Given the population\u2019s reliance on social programs, Saudi Arabia faces internal unrest if cuts run too deep.
\nIraq<\/strong>
\nAfter Saudi Arabia, Iraq is OPEC\u2019s second-largest exporter. With 90 percent of government spending coming from oil revenues, the Iraqi government employs nearly eight percent of the country\u2019s population.
\nIraq does not have an SWF like many of its counterparts in West Asia. Essential public services like healthcare, education, and policing, among others do not exist. If the present situation persists one can expect the return of more social unrest.
\nNorway<\/strong>
\nProducing two percent of global output, Norway does not plan output cuts because its oil production remains profitable despite the recent plunge, the country\u2019s Minister of Petroleum and Energy Tina Bru told a private local broadcaster.
\nA number of Norwegian fields would be profitable even at $10 per barrel, Bru said, adding unilateral action by Norway would not impact oil prices.
\nHowever, 10 exploration wells have been put on hold amid low oil prices.
\nNorway\u2019s $930 billion SWF lost $114 billion in the first quarter amid the virus outbreak, reports Reuters.
\nOther producers<\/strong>
\nQatar has a fiscal surplus and its economy is dependent on liquified natural gas exports, so less directly affected by oil prices, while the debt-burdened economies of small oil producers Oman and Bahrain are more vulnerable to price swings.
\nMexican President Andres Manuel Lopez Obrador said on Tuesday Mexico will take more austerity measures in the face of an oil price collapse. He vowed no layoffs of government employees according to Reuters.
\nAfrica\u2019s fastest-growing economy Nigeria is also Africa\u2019s largest country with a population of 205 million. With oil making nine percent of GDP, Nigeria has a break-even oil price of $57. Oil accounts for over 90 percent of exports, a third of banking sector credit, and half of the government revenues.
\nIMF expects unemployment will rise by 25 percent to approximately 25 million people in 2020, up from 20 million people in 2018.
\nNigeria has a small SWF of approximately $2 billion that will be used spending to keep figures falling in the red zone.
\nPublish Date : 2020\/04\/30<\/p>\n","protected":false},"excerpt":{"rendered":"

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