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Low Oil Prices Could Break The "Fragile Five" Producing Nations

Tyler Durden's picture




 

Submitted by Nick Cunningham via OilPrice.com,

Persistently low oil prices have already inflicted economic pain on oil-producing countries. But with crude sticking near six-year lows, the risk of political turmoil is starting to rise.

There are several countries in which the risks are the greatest – Algeria, Iraq, Libya, Nigeria, and Venezuela – and RBC Capital Markets has labeled them the “Fragile Five.”

Iraq, facing instability from the ongoing fight with ISIS, has seen its problems compounded by the fall in oil prices, causing its budget to shrink significantly. The government is moving to tap the bond markets for the first time in years, looking to issue $6 billion in new debt.

Revenues have been bolstered somewhat by continued gains in production. Iraq’s oil output hit a record high in July at 4.18 million barrels per day, up sharply from an average of 3.42 million barrels per day in the first quarter of this year. But with Brent crude now dropping well below $50 per barrel, Iraq’s finances are worsening. According to Fitch Ratings, Iraq may post a fiscal deficit in excess of 10 percent this year, and all the savings accrued during the years of high oil prices have been depleted.

Other political problems loom for Iraq. The central government and the semiautonomous region of Kurdistan have been unable to resolve a dispute over oil sales. With revenues running low for the central government, it has failed to transfer adequate funds to the Kurdish Regional Government (KRG). That led to the breakdown of a tenuous deal between the two sides that saw Kurdish oil sold under the purview of the Iraqi government. The KRG is selling oil on its own now in an effort to obtain much needed revenue in order to pay private oil companies operating in its territory.

Meanwhile, in southern Iraq, which produces the bulk of the country’s oil and has been far from the violence associated with ISIS, protests have threatened oil operations there. Protests at the West Qurna-2 oilfield operated by Russian firm Lukoil have raised concerns within both the company and the Iraqi central government about disruptions. The Prime Minister even traveled to the site to reassure Lukoil about the stability of its operations.

“Recent pressure from villagers and nearby residents making demands could force us to consider halting operations if they keep extorting us,” a Lukoil official reportedly said. Disruptions don’t appear to be imminent, but any cutback in production would be a huge blow to Baghdad and would plunge Iraq deeper into financial despair.

Low oil prices could also push Venezuela into a deeper crisis. The cost of insuring Venezuelan government bonds has hit its highest level in 12 years, indicating the growing probability of default. Critical parliamentary elections loom in December, but the government has already cracked down on opposition candidates and will likely prevent a fair election from taking place, even while President Maduro’s popularity sinks. The economy is already in crisis, but it is teetering on the brink of something more acute. Bloomberg’s editors openly wonder whether Venezuela’s neighbors are prepared for its collapse.

For Libya, already torn apart by civil war and the growing presence of ISIS militants, low oil prices are the last thing the country needs. ISIS violently crushed a civilian rebellion last week in the coastal city of Sirte, according to Al-Jazeera. Libya’s internationally-recognized government has called upon Arab states for help in fighting ISIS, something that the Arab League has endorsed. Meanwhile, the country’s oil sector – the backbone of the economy – is producing less than 400,000 barrels per day, well below the 1.6 million barrels per day Libya produced during the Gaddafi era. In other words, Libya is selling far less oil than it used to, and at prices far below what they were as recently as last year. Citing IMF data, Bloomberg says that oil is selling for almost $160 per barrel less than what Libya would need it to be for its budget to breakeven.

Saudi Arabia does not belong in the same category of troubled countries, but it is also not immune to oil prices at multiyear lows, despite its vast reserves of foreign exchange. Saudi Arabia could run a fiscal deficit that is equivalent to about 20 percent of GDP. To finance public spending, Saudi Arabia has returned to the bond markets for the first time in eight years, issuing 15 billion riyals ($4 billion) in July, only to be followed up by an additional bond offering of 20 billion riyals ($5.33 billion) in August. The government plans on taking on more debt in the coming months as well.

Still, Saudi Arabia has a market share strategy that it is pursuing, and there are no signs that it will reconsider. That could spell trouble for much more fragile oil-producing countries around the world.

 

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Thu, 08/20/2015 - 14:46 | 6448262 JustObserving
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Obama was hoping to break Russia and Putin with his war on oil prices.

Oil prices at $10 a barrel in the mid 1980s led to the collapse of the USSR.

Stakes are high as US plays the oil card against Iran and Russia

http://www.theguardian.com/business/economics-blog/2014/nov/09/us-iran-r...

 

Thu, 08/20/2015 - 14:46 | 6448275 froze25
froze25's picture

Those countries weren't broken already, it was low oil that was their undoing?

Thu, 08/20/2015 - 14:50 | 6448295 kaiserhoff
kaiserhoff's picture

Yes, how exactly can Venezuela be "more broken?"

Thu, 08/20/2015 - 15:03 | 6448350 Jethro
Jethro's picture

Maybe they'll manage to somehow clone Hugo Chavez?

Thu, 08/20/2015 - 15:38 | 6448484 TBT or not TBT
TBT or not TBT's picture

The other four countries listed are fundamentally fucked.   Venezuela might be unfuckable.    All that somewhat independently of oil prices.  

Thu, 08/20/2015 - 15:43 | 6448506 knukles
knukles's picture

Dat be dah troof.  VZ, maybe.  The others, anybody notice the geographic location?  Never been good and likely never will.  Just sayin'

Thu, 08/20/2015 - 15:46 | 6448516 Spitzer
Spitzer's picture

I thought for sure Canada would be on the list

Thu, 08/20/2015 - 15:15 | 6448384 Mr. Ed
Mr. Ed's picture

What I'd like to know is: when will the price of gasoline start to fall in line with the price of crude?!

Thu, 08/20/2015 - 15:27 | 6448441 crazybob369
crazybob369's picture

Surely you jest.

Thu, 08/20/2015 - 15:33 | 6448464 EscapeKey
EscapeKey's picture

around the time non-GAAP P/E accounting will be acknowledged to be a complete fraud.

Thu, 08/20/2015 - 15:44 | 6448512 knukles
knukles's picture

Oh man, that's gonna be like never!

Thu, 08/20/2015 - 14:47 | 6448281 Bunghole
Bunghole's picture

USA.

Exporting dissent and despair since 1913.

Thu, 08/20/2015 - 14:48 | 6448282 KnuckleDragger-X
KnuckleDragger-X's picture

Russia is hurting too, but they are a damned stubborn people......

Thu, 08/20/2015 - 15:56 | 6448569 negative rates
negative rates's picture

Pay back___ is a bitch., bitches!

Thu, 08/20/2015 - 14:52 | 6448305 rsnoble
rsnoble's picture

Head games and financial games first.  Bombs last.

Thu, 08/20/2015 - 14:55 | 6448315 falak pema
falak pema's picture

Just as Saud is hoping to break Shale USA.

Just as Iran wants to increase its MS and keeps oil price lower.

Just as...well that reminds me of 1930s...race to bottom.

The amazing thing is that cheap oil should make the DC roar with hope!

The growth rate should go north of 3% all over US/EU/Japan.

So why not?

Simple : financial death cross and peak RM as we consume already more than we can dig out at CONSTANT costs. Only variable : Labour cost has to FALL as energy is a rock bottom. If labour cost falls there is no consumption. Vicious circle.

We need the get the cost of capital; the real not the QE fake money; down, by reducing debt !

And that means this model is dead and with it USD hegemony, and with it Saud monopoly and with it... and thats when the road hits a cloud of smog!

As China rising is that fog !

Thu, 08/20/2015 - 15:39 | 6448489 PeaceLover
PeaceLover's picture

Going to throw my 2cents in.. the
US tax payier is going to pick up the shale oil bust.. because it's not a bust just a reset what was paid for "drilling"(services) was all bank leverage money the drillers/oil companys will go bankrupt .
They will all come back at a cheaper buy-in and who pickes up the hair cuts .....USA TAX PAYIER
unless you think little collage graduate with 20k debt can start a drilling company.
Same Banks that are taking hair cuts right now are telling the driller.. no worrys comeback at the reset.

 

Think about it Oil is Oil still puting it in our SUVs
and never have we seen so many with out the means to repay driving such new cars,
Until the Obama.. Automobile-subprime bailout

Thu, 08/20/2015 - 15:30 | 6448457 bmr22
bmr22's picture

Buck a gallon gas sounds good to me

Thu, 08/20/2015 - 15:47 | 6448517 knukles
knukles's picture

Yeah!  Then I can take all my hard earned savings form the price drop and afford a 3 year old used SUV with a 7 liter engine on a 88 month 0.5% lease plan.
That or take a Caribbean cruise into alcohol fueled oblivion for a week.
And get me 3 new tattoos.

Thu, 08/20/2015 - 16:30 | 6448769 TrustbutVerify
TrustbutVerify's picture

"Obama was hoping to break Russia and Putin with his war on oil proces."...huh?  Why didn't he support drilling in the US?  And the pipeline?  

If anything he wanted oil prices high, and his policies supported high oil prices, because it tips the balance toward renewable energy sources.  

Thu, 08/20/2015 - 14:46 | 6448271 buzzsaw99
buzzsaw99's picture

wtf, is saudi the only mofos smart enough to put some back?

Thu, 08/20/2015 - 14:46 | 6448272 KnuckleDragger-X
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Nothing new here, but there will be other countries that will be joining that list soon.....

Thu, 08/20/2015 - 15:16 | 6448386 BandGap
BandGap's picture

All vacation hot spots, no less.

Thu, 08/20/2015 - 14:49 | 6448290 Bill of Rights
Bill of Rights's picture

-308 DOW

Thu, 08/20/2015 - 14:51 | 6448299 froze25
froze25's picture

I picked the wrong day to stop sniffing glue.

Thu, 08/20/2015 - 15:43 | 6448507 Gambit
Gambit's picture

Glue Shmlue... enjoy the chaos with a clear mind. You are at the forefront of history man. 

Thu, 08/20/2015 - 15:48 | 6448525 knukles
knukles's picture

That's where they got the name HUFFINGton Post from, me thinks

Thu, 08/20/2015 - 16:56 | 6448895 Baa baa
Baa baa's picture

That's the problem with history (Besides revision), utter hell to live through (If you are able) and then you die anyway before it becomes interesting reading.

Thu, 08/20/2015 - 19:14 | 6449431 Offthebeach
Offthebeach's picture

( I got a case of 24 tubes of original Testors plastic model glue.  Mfg date 1974.  Kept cool and dark .  This is the real thing. The orange tubes. Fry your brain cells like eggs on hot coals!)

Fri, 08/21/2015 - 08:12 | 6450899 Gohigher
Gohigher's picture

Flashback ! Testors.

Yeah , mom, just finishing up my boat model. Gotta paint it next, heh, heh .........

Serious upvote from the chemical past !

Thu, 08/20/2015 - 14:52 | 6448304 rsnoble
rsnoble's picture

No worries, Exxon mobile has plenty of flags to stick in the ground.

Thu, 08/20/2015 - 15:02 | 6448331 tenpanhandle
tenpanhandle's picture

Iraq, Libya, Venezuela's gold already liberated.  If Nigeria and Algeria would just free their gold, oil price could go back to normal.  After all, normal high oil price necessary as American Consumer wondering why oil price = 1/2 but gasoline price = unchanged.

Thu, 08/20/2015 - 18:23 | 6449224 Benjamin123
Benjamin123's picture

In Venezuela the gold is not in vaults but in unattended mines. Their wealth pales compared to the oil fields. The Venezuela state makes enough cash to purchase 1.5 tons of gold a day in the international market, if it were to ever take that road, from oil sales, far more than it could ever mine locally.

Instead that money is routed to Switzerland.

Thu, 08/20/2015 - 15:00 | 6448336 Mike Honcho
Mike Honcho's picture

You hand Iraq and Libya democracy and freedom, still can't function, idiots.

Thu, 08/20/2015 - 15:02 | 6448344 Jethro
Jethro's picture

Muslims function well only under dictators.

Thu, 08/20/2015 - 15:37 | 6448481 UnicornSkittles
UnicornSkittles's picture

For real -

Iraq under Saddam - stable, pretty civilized, safe for general citizens

Iraq after Saddam - generally destroyed economy, infrastructure, citizens at risk from various Islamic groups

Syria under Assad - stable, fairly safe for citizens

Syria "without" Assad - civil war pushed by our allies and US - destroyed infrsatructure, beheadings, etc.

Lybia with Gaddhafi (sp?)- "Safe", oil producing, stable

Lybia without Moahmar G - destroyed and unstable overrun by IS and others

Dictators are the only thing that can keep ME stable

Saudis in charge - stable and oil producing

Iran - Stable and not overrun by head choppers

Fri, 08/21/2015 - 08:06 | 6450882 Gohigher
Gohigher's picture

NO DAWG, that there wuz rose petals under boot, not concrete and glass...........

IMO, Saud must fall.

Thu, 08/20/2015 - 15:12 | 6448372 Bastiat
Bastiat's picture

"Hand them" what!??

Thu, 08/20/2015 - 15:52 | 6448545 Mike Honcho
Mike Honcho's picture

Take the /s tag training wheels off.

Thu, 08/20/2015 - 15:01 | 6448339 CHC
CHC's picture

Saudi Arabia is burning through their reserves faster than they can say "hey, we're burning through our reserves faster than we can say it".  Look for trouble coming out of that wondeful kingdom soon.

Thu, 08/20/2015 - 15:43 | 6448511 SmallerGovNow2
SmallerGovNow2's picture

SA and Iran are the only semi stable countries of size in the region 

Thu, 08/20/2015 - 15:49 | 6448531 knukles
knukles's picture

And they hate eachother's guts

Thu, 08/20/2015 - 15:06 | 6448359 Bastiat
Bastiat's picture

Libya was better off under Gadaffi.

Libya is better off now.

Thu, 08/20/2015 - 15:43 | 6448501 tarabel
tarabel's picture

>>>> Die on your feet

>>>> Live on your knees

 

With the tyrant gone, there exists at least the bare possibility of emerging free after a long period of civil war for control of the country.

This is a war of succession such as always follows the downfall of any regime lacking in means for the peaceful and regular transfer of power.

Libya is better off now-- unless one is in favor of keeping entire populations under childlike tutelage and abject subservience forever.

Thu, 08/20/2015 - 16:48 | 6448859 Razor_Edge
Razor_Edge's picture

I doubt you're a Libyan, and if not, THEN WHO THE FUCK ARE YOU TO SAY IT'S BETTER OFF NOW?????

I can't imagine that any rational Libyan could possibly agree with you. Most Libyans, like most people, want stability to get on with their lives, to raise their families and to build a better future.

Ghaddafi was certainly a very strange man,  but a lot of good was done for Libya and Libyans under his regime. I recall seeing a video on yourtube of Sirte before the Nato bombing, and it looked more like a stylish western city than any other north African city I've ever seen. The cars were late models, the shops were cosmopolitan and busy.

https://www.youtube.com/watch?v=iOUmpzemVss

http://www.countercurrents.org/cramer040511.htm

http://www.countercurrents.org/cramer040511.htm

"Where there is no law, there is no freedom" the concluding quote on the above channel 4 report from 2013.

Libya had the highest HDI index in Africa, and was ahead of some European nations on some of the HDI criteria. I recall Libyan students coming to Ireland for education, financed by Ghaddafi's government, including their accomodation and spending money. The natural wealth of Libya was shared with Libyans, and you have to arrogance and stupidity to say that LIbya is better off now? What do you have for brains, shit?

 

Thu, 08/20/2015 - 18:22 | 6449161 Benjamin123
Benjamin123's picture

Libyans are not rational.

Is it better to live in a gold cage or to fight for survival?

As far as i can tell, Libyans got bored with their prosperity and fucked up their world just to spice things out. Its the nature of the human brain, which is designed to act and feel uneasy if theres nothing to do. 

Humans cannot live in stable societies because they naturally rank themselves and they all long for high status among their peers. Being logically impossible for everyone to have high status, they work, struggle and fight for the position. A typical human would rather be king of Bartertown than a serf in London. They dont truly care about wealth, they care about relative status.

If humans were cats the world would be a closed sack.

Thu, 08/20/2015 - 20:02 | 6449591 tarabel
tarabel's picture

 

 

I love it when people include their own counter-arguments in their diatribes.

"I doubt you're a Libyan, and if not, THEN WHO THE FUCK ARE YOU TO SAY IT'S BETTER OFF NOW????"

Since you admit to being Irish, or at least a resident thereof, you have disqualified yourself from making your own point that Libya was better off before.

The Irish too were once a well-kept underclass laboring in their wealthy Master's house, but chose instead to be gloriously free. Too bad that you prefer to see Libyans kept in the political status your people were once determined to be rid of.

Thu, 08/20/2015 - 15:13 | 6448375 Sanity Bear
Sanity Bear's picture

Let's call them VILANs

Thu, 08/20/2015 - 15:14 | 6448380 Jack Burton
Jack Burton's picture

If you carefully look around the world, you see a ring of fire developing. The second tier nations are collapsing into chaos and war, both civil and international. You can see this in one of it's symptoms, the incredible flood of illegal migrants racing to get into the EU before the flood prompts deliberate border closings. I watched some videos of various sites where the migrant flood is washing up. The pictures tell a tale of absolute desperation. They know that Europe is wide open and a welfare state, they want to get there and will die trying. They know sooner or later a backlash will drop the barriers on the late arrivals.

But back to oil, the dropping prices will increase collapse in nations already torn apart by US invasions, or coups. If Algeria goes down, then nearly the entire North African coast will be in chaos! Inbetween prosperous nations like the EU, Australia, Canada, the USA, even Russia and China, there exist many nations all collapsing due to population pressure, failing governments, corruption, lack of land and water. These hundreds of millions of people will set out for the richer nations. EU is the big target. Australia has shut the door, and they are the only ones so far to do that. The USA, is wide open. Canada is very open but with some real restrictions. New Zealand is open, but like Canada making it harder.

The five nations mentioned should all collapse. They are corrupt. Their people are socialist by nature. They can't build civil societies due to built in ethnic hates and socialist desires.

In 5 years time, the situation will see over 100 million people in huge armies of refugees swarming across the globe heading for the EU. Today, Macedonia declared an emergency and called out troops as waves of illegal migrants attempt to cross from Greece. When asked, the migrants have pat answers. Hello Migrant: "where do you want to go". Answer: "I want to go to England. I want house in London, I see that on TV. They give apartment for me and family."  Migrant where do you want to go: "I try go France, I keep go and they send back. I only want go France, they take me to my friends who have apartments Paris." Migrant where are you headed: "Me? German, me go German, me work and build house so my family come, me build house after get work"

The EU faces it's gravest crisis since inception. Merkel announced it herself. "Never has Europe faced a crisis like this". She knows that this is a beginning, a start, an opening salvo. The real migrant flood is coming soon. Nation after nation is collapsing. Including all five mentioned above.

Thu, 08/20/2015 - 15:35 | 6448475 SmallerGovNow2
SmallerGovNow2's picture

Great analysis Jack. I've been watching this ring of fire as well. Part of me thinks it is to cut off the brics from Europe. But at the same time the chaos and mass migrations will crush Europe. Crazy times... 

Thu, 08/20/2015 - 15:57 | 6448546 knukles
knukles's picture

The Barbarians Have Breached the Gates (Already, folks)
This is no longer a golly gee, know what's gonna happen if this shit continues, folks.  It's here, right now in River City.
It's already come the fuck unglued!  Wakie wakie rise and scream in terror, Sunshine!

http://www.breitbart.com/big-government/2015/08/19/exclusive-az-sheriff-...

Thu, 08/20/2015 - 17:57 | 6449129 Benjamin123
Benjamin123's picture

Venezuelans do not have intrinsic socialist natures. They do have ethnic hatreds which can be either placated or fanned by local governments propaganda whenever it suits them. They fall in line and quickly think whatever they are ordered to think.

The typical venezuelan will think and do whatever he is asked to if the order came from an authority.

Thu, 08/20/2015 - 18:58 | 6449364 BarkingCat
BarkingCat's picture

Start shooting them on sight and they will stop coming.

This is what nations did in the past. You kill the invaders.l

Thu, 08/20/2015 - 15:28 | 6448445 SilvertonguedAngel
SilvertonguedAngel's picture

Nothing but a shakeout.

 

Too many competitors.

Thu, 08/20/2015 - 16:32 | 6448772 silverer
silverer's picture

How could you POSSIBLY be in TROUBLE for getting money for anything that just comes out of the ground??  WTF!?  Follow the money, and you are SURE to see that almost all of it was frittered away and misallocated.  They probably did the same stupid thing that people do when they hit the lottery.  Lose it all in three years pissing it away on stuff they never really needed, and because they are STUPID, STUPID, STUPID.

Thu, 08/20/2015 - 17:51 | 6449091 Benjamin123
Benjamin123's picture

I cant tell for the other countries but that is certainly the case for Venezuela. My theory is at some point the local elites figured oil was all they personally needed and the population was a burden, despite the fiery socialist rethoric. BTW, this has been going on since the 80s. Politically unable to get rid of it useless population (from the elite´s viewpoint), it was simply neglected and denied not only of money, but of any rights and local resources including security, roads, ports and the right to issue private contracts, own property, and the right to buy and sell goods.

Had there been no oil in Venezuela it could have been another Colombia.

It means little to the Venezuelan elites as they derive their cash from oil. That money never stays for very long in Venezuela, it is forwarded to Switzerland as soon as the tankers arrive, specifically to the accounts of tens of thousands of connected coronels and their extended families and close friends.

 

Thu, 08/20/2015 - 17:38 | 6449050 Benjamin123
Benjamin123's picture

Venezuela? Crisis in Venezuela? When was the last time Venezuela was not in a crisis? By my account, 1983.

 

https://es.wikipedia.org/wiki/Viernes_Negro_(Venezuela)

 

Black Friday, 1983. Considered among Venezuelans the day it all stopped getting better and started getting worse.

Thu, 08/20/2015 - 18:18 | 6449221 Grandad Grumps
Grandad Grumps's picture

The Saud have much bigger bills to pay than any of the other countries.

Thu, 08/20/2015 - 19:22 | 6449463 Ms No
Ms No's picture

Seems to me that whoever controls the US must gain control of Venezuela, if it's not already in progress.   

Thu, 08/20/2015 - 19:34 | 6449506 noel8
noel8's picture

Venezuela is already experiencing a depression with so many people queuing everyday for getting some food.

https://youtu.be/eH_8AwIBnuo

in US there are,now,  46 millions people everyday lining up at 6.30 AM at food banks but nobody care as long as they can enjoy there, unstoppable  diminishing purchasing power,

Reality does not exist anymore with the ongoing promises of rosy outlook, until the   tangible effects of the decline cannot be denied anymore

Once we get risk off and liquidation everywhere this manipulated and artificial assets boom will end and the inevitable crisis will start sweeping everything and everybody away.

 

No need to look at any excuse like oil abroad

the world is in a downward spiral and US it not an exception.

 

 

 

Thu, 08/20/2015 - 19:54 | 6449570 tarabel
tarabel's picture

 

 

There may be 46 million sucking off of SNAP cards but there are not 46 million lining up at food banks at 6:30. 

Other than that, I don't have much of a beef with your general point, which is a valid one. The Universal Madness approaches.

Thu, 08/20/2015 - 20:13 | 6449628 noel8
noel8's picture

Thanks

for the 46 millions which is a correct number ...I cannot imagine all these people queing at 6.30 AM My mitake sorry

only some and that is way too many. 

Fri, 08/21/2015 - 04:55 | 6450630 Benjamin123
Benjamin123's picture

Thats a line to buy milk, not "get" it.

Theres no food to buy there, the shelves are empty.

Do NOT follow this link or you will be banned from the site!