"The Curse of Oil-Producing Countries Has Begun"... Oil Price Collapse Puts Oil-Producing Economies at 'Catastrophic Risk'

[Asia Economy Reporter Naju-seok] The curse of oil-producing countries has begun. As oil prices have plummeted to unprecedented levels, oil-producing countries that operated their national finances by selling crude oil are suffering massive damage. These countries are revising their originally planned budget execution plans and are increasingly announcing plans to reach out to overseas financial markets to secure the necessary funds.

[Image source=EPA Yonhap News]

On the 22nd, international oil prices continued to plunge. On the London ICE Futures Exchange, June delivery Brent crude oil briefly fell below $16 per barrel during trading. This price level is the lowest since June 1999. As of 2 p.m. Korean time, Brent crude was trading at $16.25 per barrel, down 15.93% ($3.08) from the previous trading day. At the same time, West Texas Intermediate (WTI) crude oil was also trading down 8.7% ($1.01) at $10.56 per barrel.

With oil prices falling sharply, including recording negative prices for the first time in history, the finances of Middle Eastern countries, which were already struggling economically, are shaking. Among Middle Eastern countries, Saudi Arabia, Qatar, Kuwait, and the United Arab Emirates, which are considered relatively wealthy, are also in relatively good condition. However, these countries have also decided to significantly cut their budgets this year.

In Saudi Arabia’s case, the budget for this year will be cut by 5%, and the debt ceiling will be raised from 30% to 50% of the Gross Domestic Product (GDP). If necessary, they plan to secure the lacking funds through government bonds and other means. Additionally, Saudi Arabia has halted large-scale national projects that Crown Prince Mohammed bin Salman had been enthusiastically promoting. Qatar and the United Arab Emirates have already reached out to overseas capital markets.

Countries that produce oil but are not considered wealthy, such as Iraq, Algeria, and Oman, are in even worse situations. There are talks that Iraq may only be able to pay about half of public servants’ salaries starting next month. Algeria has also cut its budget by 30%. Although Algeria has $96 billion in foreign exchange reserves, it is predicted that only $12.8 billion will remain next year.

[Image source=AP Yonhap News]

Russia has been relatively better off by preparing a sovereign wealth fund in anticipation of falling oil prices. Because of this, there were expectations that Russia could win the oil price war, but the oil price drop beyond expectations has left Russia’s sovereign wealth fund helpless. Initially, Russia said it could cover eight years of budget deficits with the sovereign wealth fund even if oil prices fell, but now it is forecasted that it can only last about four years.

Nigeria, Africa’s largest oil producer, has also significantly cut its budget and requested external financial support due to the sharp drop in oil prices.

This content was produced with the assistance of AI translation services.