The Oil Price Shock: Who’s Most Vulnerable in the Coronavirus Slump?

The coronavirus pandemic has rapidly eroded global demand for oil, sending prices plunging by more than 50 percent since the beginning of the year. The steepest drop occurred in March, after a failed conclave among major petrostates, including Russia and Saudi Arabia, prompted Riyadh to flood markets with oil.

Most governments in the Organization of the Petroleum Exporting Countries (OPEC) are highly reliant on oil revenue, but some are better positioned than others to ride out a long slump in oil prices. The external breakeven oil price is a useful yardstick for measuring how prepared oil producers are to withstand a downturn in prices. For instance, countries with high breakeven prices, such as Algeria, could feel greater pressure than peers to cut spending, raise revenue, borrow, or take other actions to cope. Countries with relatively low breakeven prices, such as Russia, are generally more insulated.

Other factors that affect a country’s ability to weather a lengthy storm include its access to international credit markets, its foreign exchange reserves, and its exchange rate regime. For example, Kuwait, Saudi Arabia, and the United Arab Emirates have easy access to credit markets, while Iran and Russia are under sanctions.