Weathering the oil price plunge

The oil price has plummeted since the beginning of 2020 as the coronavirus is negatively affecting demand, while oil producers are entangled in a price war.

- Following supply and demand trends, the global oil price will increase in the long-term. However, lower demand due to the coronavirus outbreak and higher supply as OPEC+ scrapped their production caps have currently caused the oil price to plunge.

- While Saudi Arabia and Russia have enough flesh on the bones to prolong the price war, many other oil exporting countries will face severe pressure on their budget balance and a possible shortage of foreign exchange. Budget deficits of Kuwait, Iraq, Oman, Saudi Arabia, Algeria and Angola could widen to (near) double digits in 2021.

- Oman and Bahrain are especially vulnerable, and the stability of the Gulf region is potentially at stake. Our view is that Saudi Arabia will offer support to its neighbours if needed.