NAIROBI/LAGOS, April 15 – A sharp decline in crude oil prices, triggered by U.S. President Donald Trump’s tariffs, is expected to strain the budgets of oil-exporting emerging markets, analysts warn. At the same time, the potential slowdown in global economic growth may limit any advantages for oil-importing nations.
Following the announcement of sweeping tariffs on April 2, concerns over a potential trade war between the U.S. and its global partners sent Brent crude prices tumbling more than 20%. The price fell to a four-year low before rebounding slightly to around $66 per barrel, up from below $60.
Countries dependent on oil imports, such as Turkey, India, Pakistan, Morocco, and many in Eastern Europe, are likely to benefit from the lower crude prices. However, nations that export oil—including the Gulf countries, Nigeria, Angola, Venezuela, and to some extent Brazil, Colombia, and Mexico—are expected to suffer from a significant loss in hard-currency revenue.
“Oil-exporting countries will bear the brunt of this drop, while oil-importing countries will see some benefits,” said Thomas Haugaard, portfolio manager for emerging market debt at Janus Henderson Investors. “Oil exports are vital to public finances, and this will likely raise credit risk premiums.”
According to Morgan Stanley, the current oil price is far below the average projected budget assumption of $69 per barrel for major oil-exporting countries, highlighting Angola and Bahrain as the most vulnerable.
Angola is already feeling the effects. The country recently had to pay $200 million after JPMorgan issued a margin call on Angola’s $1 billion total return swap. This loan was backed by the nation’s dollar bonds, which were issued last December.
“The current market conditions have affected the commodities and emerging market Eurobonds, including the value of Angolan Eurobonds, triggering a margin call,” Angola’s finance ministry told Reuters. Despite the financial strain, the government met its obligations on time and in cash.
This collateralized loan was chosen to manage Angola’s liabilities in a period of uncertainty regarding access to the Eurobond market due to significant foreign debt, including loans from China and other commercial lenders.
For Angola, like other frontier markets, the bond market turmoil has led to a sharp increase in bond yields. This, along with the drop in crude oil prices, has undermined recent financial stability. The International Monetary Fund (IMF) has classified Angola’s debt as being at risk of high distress, though the government remains confident that its debt trajectory is stable.
The fall in oil prices is also affecting frontier market debt trades that had previously held up. JPMorgan highlighted the Nigerian carry trade, which had relied on the assumption that the naira would not depreciate rapidly against the dollar. With the decline in crude prices, investors now face losses, especially if the naira’s value drops further.
The central bank of Nigeria has been forced to increase its dollar sales interventions to avoid currency conversion risks and stabilize the naira.
A prolonged drop in oil prices could derail economic reforms in oil-exporting countries, analysts warn. Oil constitutes approximately 90% of Nigeria’s exports, and crude earnings are projected to fund 56% of the country’s 2024 budget. The Nigerian government had initially forecast oil at $75 per barrel, but now must revisit its budget plans.
“We are going back to the drawing board to review the budget,” Nigerian Finance Minister Wale Edun said last week.
While countries like Saudi Arabia and the UAE are better equipped to weather the price drop due to their larger financial reserves, lower debt levels, and ongoing economic diversification efforts, a decline in oil revenue could still pose challenges.
Even in these wealthier Gulf nations, lower oil prices may limit government spending on new projects, which could affect their economic development plans, including those of Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries (OPEC).
For oil-importing nations, the drop in oil prices offers potential benefits. These include lower import bills, improved current account deficits, and reduced inflation pressures. However, analysts caution that these benefits may be offset by other challenges stemming from the ongoing trade war.
“The lower oil prices may help oil importers, but they are unlikely to fully mitigate the significant challenges posed by the trade war,” said Monica Malik, Chief Economist at Abu Dhabi Commercial Bank.
In conclusion, while the drop in oil prices offers some relief to oil-importing nations, oil-exporting countries are likely to face significant financial difficulties. The continued impact of the trade war and slower global growth could compound the difficulties for both groups of countries.
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