Plenty of oil commodity producers are in trouble, and that includes more than a handful of countries whose economies are heavily dependent on oil, gas, and other natural resource exports.
In the 1980s, a wave of defaults swept emerging markets, with a large portion of the blame put on the crash in oil prices. The latest crash in prices for a range of commodities – not just for oil, but also gas, coal, copper, nickel, etc. – is once again raising the prospect of defaults for emerging market economies that are dependent on commodity exports, according to a report released in late January from Oxford Economics.
The collapse of oil prices has gutted the finances of oil exporters. Or as Oxford Economics sums it up nicely: “These are bad times for oil producers and their creditors.”
According to the research firm, emerging market economies that depend on natural resource exports are not being realistic about the state of the markets, and many are using vastly overoptimistic assumptions about oil prices. On average, these countries assumed an oil price for 2016 that is more than 50 percent above what futures market is telling us that oil will trade for this year.
While many have suffered, the pain is not over. “We expect widespread rating downgrades and further bad performance across commodity-producing sovereigns,” Oxford Economics wrote in its January 27 report. The markets are already pricing in downgrades of around two to three notches for many of the countries in question.
Several of the Gulf States in the Arabian Peninsula, such as the UAE and Qatar, have massive sovereign wealth funds, which will allow them to withstand the bust in oil prices for quite some time.
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