The Big Freeze
Oil’s Price Collapse Is Quickly Draining Petrostate Coffers

The petrostates assembling in Doha to discuss a potential output freeze two days from now aren’t coming together in a show of solidarity or out of some sense of duty towards one another, but rather as an act of desperation. Bloomberg ran the numbers, and found that the oil price collapse has collectively cost the 18 countries involved in this meeting nearly one third of a trillion dollars:

The 18 nations set to gather in Doha on Sunday to discuss a production freeze have spent $315 billion of their foreign-exchange reserves — about a fifth of their total — since the oil slump started in November 2014, according to data compiled by Bloomberg. In the last three months of 2015, reserves fell nearly $54 billion, the largest quarterly drop since the crisis started. […]

Saudi Arabia accounts for nearly half of the decline in foreign-exchange reserves among oil producers, with $138 billion — or 23 percent of its total — followed by Russia, Algeria, Libya and Nigeria. In the final three months of last year, Saudi Arabia burned through $38.1 billion, the biggest quarterly reduction in data going back to 1962. […]

“We expect 2016 to be yet another painful year for most of the oil states,” said Abhishek Deshpande, oil analyst at Natixis SA in London.

$315 billion is an enormous sum, and it represents the cost of OPEC’s Saudi-led plan not to cut production at any point during oil’s period of sliding prices these past 22 months. Until this February, this seemed like a price Saudi Arabia was willing to pay—though it’s been paying it dearly. Now, though, the Saudis are finally looking to coordinate production with other petrostates, spurred on by the speed at which their rainy day fund is being depleted.

And with Riyadh ready to play ball, there’s not much more in the way of a deal to limit output…except for Tehran, which is looking to boost its own production to the levels it was posting before Western sanctions were enacted. Iran is one of many reasons why this Doha meeting looks unlikely to produce the sort of price rebound those 18 assembled nations really want, but Bloomberg’s data give us a better idea of why these petrostates are finally trying something.

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