Smaller oil exporters face a potentially catastrophic loss in import revenues if prices are sustained at their current low rates according to a blunt warning issued by the International Energy Agency (IEA) overnight.
The already modest budgets of governments in Iraq, Nigeria and Angola could reduce by more than two-thirds this year as Saudi Arabia and Russia attempt to hold down prices to cripple US shale oil producers.
This revenue hit would coincide with the full impact of COVID-19 on the global economy, emerging as the biggest global threat since the second world war.
IEA chief Fatih Birol has already likened the aggressive market hit to increase oil production as the global economy slows as Russian Roulette, a threat which has been countered by the US Government buying up its own domestic output to support its highly leveraged private shale oil producers.
The IEA paper estimated that with oil prices averaging around USD$30 a barrel in 2020, oil and gas income would fall for some producers by between 50 and 85 per cent.
This would force the Iraqi Government to borrow USD4$ billion a month to pay its government employees, let alone the extra resources it will need to support its health care system over the coming months. The human cost of such an aggressive strategy at this time could be significant.
The problem for most oil producers is their high reliance on oil exports as a source of income. with the exception of diversified Norway, most oil producers service from 60 to 90 per cent of their income from oil exports. Attempts to diversify their economies to reduce this reliance have met with limited success.
The compounding effect of a global pandemic on bankrupt governments is just another in a growing list of serious problems facing the world right now. the difference with this, unlike so many others at the moment, is that this one is avoidable.