The decline in global oil prices due to the coronavirus outbreak and breakdown of the OPEC+ agreement is likely to impact the fiscal revenue and exports of many oil producing countries, including Saudi Arabia, according to a new report by Moody's Investors Service.
However, the Kingdom’s robust sovereign balance sheet will cushion the impact, the report said.
Many oil and gas-exporting sovereigns accumulated significant sovereign assets during periods of higher oil prices, which will provide a degree of resilience at a time of lower oil prices. In addition, the liquid portion of these assets significantly exceeds government debt and is readily available to finance fiscal deficits and debt repayments.
“Robust sovereign balance sheets will support Qatar and the UAE, and, to a lesser extent, Saudi Arabia, Kuwait, Azerbaijan, and Kazakhstan,” Moody’s noted.
Moody’s estimated that the fall in fiscal revenue and exports in Saudi Arabia, along with Oman, Qatar, Azerbaijan, Republic of the Congo and Bahrain, would be in the range of 4%-8% of GDP, compared to more than 10% in Iraq and Kuwait.
The coronavirus outbreak's squeeze on global oil demand and the breakdown of the OPEC+ agreement earlier this month have created a deep, albeit temporary, shock to oil prices.
However, the severity of the credit impact of lower oil prices on oil and gas-producing sovereigns will vary from country to country, driving divergence in their creditworthiness.
The most vulnerable sovereigns are Oman, Bahrain, Iraq and Angola, where external vulnerability is high and capacity to adjust to the shock is limited. By contrast, stronger fiscal positions ahead of the shock buffer the credit implications for Saudi Arabia, Qatar, Russia, Azerbaijan, and Kazakhstan.
"We don't currently see the price decline as the outcome of a structural shift in the oil market, and fundamentals support our medium-term oil price assumption of $50-$70 per barrel," Alexander Perjessy, a Moody's Vice President – Senior Analyst, said.
He added that the most vulnerable sovereigns to lower oil prices in 2020-21 are those with the highest reliance on hydrocarbons as a source of fiscal revenue and exports, and limited capacity to adjust.
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