Introduction
We think of oil exporting countries as financially sound with significant international reserves. And this is certainly valid for most of the Middle East sheikhdoms. But there are other exporters where the oil price drop will have a major impact. Below, the economic impact of lower oil prices on the leading exporters is examined.
The Leading Exporters
The leading oil exporters are presented in Table 1 along with two measures of their economic significance to each country – their shares of exports and GDP. The high dependency of most of these countries on oil and the shaky political circumstances of Iraq, Libya, Nigeria, and Venezuela are troubling to say the least.
Table 1. – Leading Oil Exporters, Shares of Total Exports/GDP, 2013
Source: UNCTAD
Fiscal Soundness of Oil Exporters
Evidence on how are the oil exporters are managing their finances is presented in Table 2. The government deficits (Col. 2) of Libya and Venezuela attest to the “train wreck” nature of fiscal management in those countries. How important are oil export taxes for these countries? Export duties and other taxes on oil exports vary widely, but assume the average rate is 20%. What that would mean for oil tax revenues appears in Col. 3. What if those revenues were cut in half? The resulting government deficits of these countries would increase by the amounts shown in Col. 4. Keep in mind that deficits of 5% or more become serious problems very quickly.
Table 2. – Fiscal Soundness of Oil Exporters
Sources: UNCTAD and IMF
International Accounts
Most oil exporters depend significantly on their oil exports for foreign exchange. And it often happens that robust oil exports strengthen their currencies. And those strong currencies make it difficult for them to have any other competitive exports.
The trade balances of the oil countries are presented in Table 3. In addition, the final column on the right indicates what happens to the balance if oil exports fall by 50% because of price cuts. Keep in mind that positive trade balances are important to all of these countries because they all have capital outflows.
