A drop in oil prices is a good sign for consumers, but current economic conditions and the coronavirus pandemic makes it difficult to see who stands to benefit.

As if things weren’t already bad enough with the coronavirus pandemic and a slowing global economy, a sharp drop in the price of oil has made things even worse for some countries. 

The fall in oil prices is the result of a rift between the world’s two leading producers, Saudi Arabia and Russia, and has created uncertainty about the stability in petrostates like Iraq, Iran, Algeria and Nigeria. 

On the face of it, the equation is simple: oil-producing nations stand to lose while those dependent on imports reap the benefit. But there are a host of other factors, including the domestic economic situation, an already depressed outlook and the still unknown impact of the novel coronavirus that will decide the tangible impact. 

The price of Brent crude, the international benchmark, has dropped to around $32 per barrel - a decrease of more than half since the start of the year. 

After failing to reach an agreement with Russia last week on the question of how to stop the slide in oil prices, Riyadh decided to crash the price by offering discounts to customers and jacking up production. 

That might seem counterintuitive to what it was trying to achieve since cutting prices will reduce Saudi oil revenue and those of other members of the Organisation of Petroleum Exporting Countries (OPEC). 

Russia is not an OPEC member but being among top three global producers it has been closely working with the group for the last couple of years to fix the price by fixing the level of oil output. 

Moscow says it is not the right time to cut production when it is clear how badly the demand for fossil fuels will be hit in wake of the coronavirus spread, which has forced some countries to quarantine entire cities and ban international travel. 

Saudi Arabia and Russia are also trying to inflict losses on shale production, which has helped propel the United States to becoming the world’s leading oil producer. 

Here’s a quick look at how a few countries will fare in the coming months as a consequence of low oil prices. 

Saudi Arabia 

When it comes to the cost of taking a barrel of oil from the ground, there’s hardly any country that can beat Saudi Arabia. 

Its Ghawar oil field, the largest in the world, has been pumping oil since the 1950s. The investments and returns have mostly been accounted for. In its prospectus before the company’s initial public offering (IPO), Saudi Aramco said it can produce oil at a price as low as $7.5 per barrel. 

Russian President Vladimir Putin and Saudi Arabia's Crown Prince Mohammed bin Salman differ over the way on how oil producers should deal with the slump in prices.
Russian President Vladimir Putin and Saudi Arabia's Crown Prince Mohammed bin Salman differ over the way on how oil producers should deal with the slump in prices. (Reuters)

However, that’s just one side of the story as the government needs a lot more money to run the affairs of the government. 

The International Monetary Fund (IMF) estimates that Riyadh needs a price of $78 to balance its budget. The Arab world’s largest economy is already feeling the squeeze as it tries to control the widening budget deficit, which is a result of less revenue and higher expenditure. 

Billions of dollars are spent on defence purchases, and generous handouts given to members of the royal family and Saudi citizens every year. 

Saudi Arabia has been borrowing from international markets in recent years to make up for its budget shortfall. 

The Saudi Crown Prince Mohammad Bin Salman’s ambitious plans to reduce reliance on oil by attracting foreign investments and creating jobs for the youth has yet to take off. 


Russia is in a better financial position than Saudi Arabia to withstand the impact. Moscow says it can survive oil prices in the range of $25-$30 per barrel for six to 10 years.  

Unlike Saudi Arabia, Russia also sells natural gas via transnational pipelines. Its gas is generally sold under long-term contracts and its economy is much more diverse than the Saudi economy. 

Russia has built reserves of more than $600 billion, which it can use to meet its spending needs. But it still depends on energy sales to finance around 40 percent of its budget and will feel the crunch sooner or later. 

In recent years, Moscow has followed a conservative financial policy by cutting expenses. For its 2019 budget, it needed a break even price of $49.2 a barrel. 

United States 

Lower oil prices are a good sign for American consumers as it makes it cheaper for people to hit the roads in their cars. President Donald Trump was quick to indicate its positive impact. 

However, a low oil price can spell disaster for US shale producers as they need at least $50 a barrel to make their investments viable. 

US producers in the states of Texas and New Mexico have already taken a hit after the prices dropped in 2014. Thousands of oil industry workers have lost their jobs, and many small companies have gone out of business. 

The oil-dependent state of Texas stands to lose $85 million a year for every $1 fall in oil price. 


In 2019, Turkey spent more than $41 billion on energy imports. The energy import bill has an oversized impact on its current account. 

In recent years, whenever Turkey has faced issues with the balance of payments - the difference between how much money comes in the country against how much goes out - energy imports have had a role to play in it. 

A 9 percent drop in Brent oil to $64 per barrel last year cut Ankara's energy import bill by 4.2 percent on a year-on-year basis. 

Professor Erhan Aslanoglu of the Piri Reis University told Daily Sabah that a $20 decline in oil price could cut the current account deficit by around $7-8 billion. 

The price of gas that Turkey imports is also linked to oil. But almost 90 percent of it is covered under long-term contracts, which means the trickle-down effect of the lower prices will take some time to reflect in the bills. 

The government has already marginally reduced the price of petrol and diesel. 

China, India and Japan 

China, the world’s largest oil importer, has driven the price of oil for years with its unceasing appetite for growth. 

This photo taken on February 27, 2020 shows passengers wearing protective face masks while riding the subway in Shanghai.
This photo taken on February 27, 2020 shows passengers wearing protective face masks while riding the subway in Shanghai. (AFP)

But now it is at the centre of the battle to contain the coronavirus. Beijing has put restrictions on the movement of millions of people, shut factories and cordoned off entire towns and cities. 

As the economy cools, the demand for oil will take a hit. 

In India, which is also a major oil consumer, the drop in price is good news for manufacturers and commuters. But the government of Prime Minister Narendra Modi can earn tax from petroleum sales instead of passing on the benefit to consumers. 

Yet at the same time, slowing trade could hurt its exports. 

Japan depends on oil imports and benefits from any drop in price. But the crisis caused by Covid-19 has pushed investors to buy the Japanese yen, pushing up its value and as a result, making Japanese exports expensive.

Other exporting countries 

Other oil-exporting economies will respond to price drops depending on their specific circumstances. 

Nigeria, Africa’s largest producer, could see an erosion of its foreign exchange reserves as the central bank there tries to support its currency, the naira, which is already under pressure. 

Nigeria depends on oil for as much as 90 percent of its foreign exchange earnings. 

Norway, Europe’s dominant oil producer, will also feel the heat. More than a third of Norway’s exports come from oil and gas sales. Its currency, the Norwegian krone, has already taken a beating. 

The government in Iran, which is already feeling the pain of US sanctions, has a lot to worry about. It is facing one of the deadliest outbreak of the Covid-19 outside of China and desperately needs international funding. 

Algeria, which derives more than 85 percent of its revenue from oil and gas sales, has been facing political turmoil for a year. People are already fed up with poor living standards and it will make it difficult for the government there to control unrest if oil prices remain low for a sustained period. 

Source: TRT World