Strategy Note /
Global

Oil: Not a simple importer (benefit), exporter (cost) dichotomy

  • Oil importer current account and currency should benefit from the collapse in oil price in the last week.

  • But this may be offset by the hit to global growth (coronavirus and growth in the oil exporters)...

  • ...And less capital inflow (financial market contagion, high yield credit defaults, less oil sovereign wealth).

Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

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Tellimer Research
9 March 2020
Published byTellimer Research

A fall in oil price should ordinarily benefit importers (less current account and currency pressure) and hurt exporters, particularly those at the more vulnerable extremes (eg Kenya and Pakistan among the importers, Oman and Nigeria among the exporters). But the world may be too interconnected to stick to such a stark dichotomy.

The benefit for oil importers may be offset by the hit to: 

(1) Global growth (coronavirus and the oil price collapse drags growth down further from an anaemic starting point); 

(2) Capital flows (eg contagion in financial markets in this sell-off, systemic impact on credit markets from defaults in the high yield segment, less foreign investment from oil-based sovereign wealth funds).

Furthermore, the collapse in the oil price (Brent is down over 30% in the last week) may serve to shorten the war on oil supply and market share between Saudi and Russia (and, indirectly, US shale).

Related reading

Oil war: Saudi, Russia can sustain a long war, but a 35% price drop shortens it, 9 March 2020

GCC: Sovereign wealth warning from the IMF (again), 7 February 2020

Coronavirus – The international policy response, 5 March 2020

Coronavirus: Should it be ignored because it is such an unquantifiable risk?, 25 February 2020

Coronavirus: Commodity prices hit as fears grow more global, 3 February 2020

Coronavirus: UAE case a warning for global tourism, 29 January 2020