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After Aramco attack: Oil price winners-losers, loss of GCC "hedge"

  • GCC, particularly Saudi, no longer "hedged" against regional security risk

  • Kazakhstan and Russia in particular, as well as Colombia, Malaysia and Nigeria, should benefit from higher oil prices

  • Jamaica and Jordan in particular (among others) likely to suffer from higher oil prices

After Aramco attack: Oil price winners-losers, loss of GCC "hedge"
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
16 September 2019
Published by

The oil price spike which has followed the attacks on Saudi Aramco assets in Abqaiq and Khurais prompts us to revisit a previously published chart on oil exposure (net fuel imports) across the frontier and emerging markets we look at. 

The chart below shows the size of net fuel imports as a percentage of GDP between 2014 and 2016 (a period in which Brent oil price averaged US$65).

Net fuel exporters and importers in Frontier and Emerging markets

Source: World Bank, Tellimer Research


GCC, particularly Saudi, no longer "hedged" against regional security risk?

Historically, the GCC oil exporters have enjoyed an economic hedge against regional insecurity: the greater risk resulting from regional insecurity was offset by higher oil revenues. But that was because the focus of that risk was Iran or in proxy battles and disputes (e.g. Iraq, Syria, Lebanon). 

These are the first successful and material attacks on core GCC oil infrastructure since Saddam's invasion of Kuwait in 1990. This means the historic hedge does not apply: in other words, we are in uncharted territory for the current generation of international asset managers in the GCC, particularly with regards to Saudi which is most diametrically opposed to Iran. This matters at a time when local equity index valuations in the core four exporters are either close to median 5-year trailing price/book (Abu Dhabi and Saudi) or at a significant premium (8% for Qatar and 22% for Kuwait).

Beneficiaries and victims of higher oil price

Kazakhstan and Russia in particular, as well as Colombia, Malaysia and Nigeria, should benefit from higher oil prices (and/ or higher oil output to compensate for any lasting shortfall in Saudi supply).

Jamaica and Jordan in particular, as well as Chile, Georgia, Iceland, India, Kenya, South Korea, Mauritius, Morocco, Pakistan, Sri Lanka, Tanzania, Thailand, Tunisia and Zimbabwe, are likely to suffer from higher oil prices.