Reporting by Anna Hirtenstein and Yousef Saba
(Reuters) – Governments reliant on oil revenue are facing challenges due to the lowest crude prices since the COVID-19 pandemic, with officials considering strategies like increasing debt and cutting expenditures to manage revenue declines.
Brent crude fell over 15% in the wake of U.S. President Donald Trump’s aggressive tariffs, as rising tensions in the trade war between the U.S. and China raised concerns about economic recession and energy consumption. That same week, OPEC+ proposed a plan to boost supply next month. Brent dropped below $60 a barrel, marking its lowest point since February 2021.
Previous oil price downturns have necessitated challenging reforms for governments dependent on crude exports. For instance, a decade ago, when Saudi Arabia initiated a price war with the U.S. shale sector and Brent prices fell to $36 a barrel, Riyadh cut spending and eliminated energy subsidies. Meanwhile, Libya depleting central bank reserves and halted infrastructure initiatives, while Iraq sought international aid to remain solvent.
“The recent drop in oil prices has taken many oil-dependent economies into a territory far from what they need for balanced budgets,” stated Richard Bronze, head of geopolitics at Energy Aspects.
“For some countries, this jeopardizes essential public spending, increasing the likelihood of political instability and unrest.”
Brazil is poised to hold an additional auction this year for stakes in offshore oil regions to bolster revenue, as indicated by four sources who spoke anonymously. This initiative gained momentum due to the decline in oil prices and heightened global trade uncertainties, sources revealed.
“We are concerned, and the warning signs are flashing,” noted
Claudio Castro, governor of the state of Rio de Janeiro, who mentioned plans to restrict spending, with Brazil’s 2025 budget predicated on an average Brent price of $80.79.
Other producing nations are contemplating bridging their deficits through debt. Kuwait enacted a law last month enabling its government to access international debt markets for the first time since 2017. Minister of Finance Noora Al-Fassam emphasized the need to enhance the flexibility of public finances.
Saudi Arabia has also relied on bond markets in recent years to fund its spending surge aimed at economic diversification. The kingdom is now under increasing pressure to reduce expenditures following the plunge in crude prices, complicating plans for ambitious projects like Neom City. The International Monetary Fund estimates that Riyadh requires oil prices exceeding $90 a barrel to balance its budget.
“We are evaluating the recent developments and are prepared to make any necessary policy decisions to maintain a robust fiscal position,” stated a spokesperson for the Saudi finance ministry in reply to Reuters inquiries.
In the year’s first quarter, oil prices traded between $69.28 and $82.03, hindered by China’s economic slowdown and OPEC’s impending supply increase. This presented a challenge for governments reliant on elevated oil prices, with the recent decline intensifying the pressure.
The Russian economy has faced significant deceleration recently, particularly among non-defence industrial sectors. Analysts predict further contraction if falling oil prices and global market turmoil continue. There is growing pressure on the central bank to lower interest rates, despite ongoing inflation.
Moscow’s 2025 budget was based on an average price of $69.70 per barrel, with the Mexican government anticipating $62.50. For Iraq, which relies almost entirely on oil revenues, crude prices below $70 are problematic. The price dip is likely to hamper Baghdad’s infrastructure development efforts as it seeks to recover from years of conflict.
Nigeria planned to source over half of its total revenue from energy exports. Analysts suggest the government should revise these targets to align with global realities. Historically, during periods of reduced oil prices, the country has opted to increase borrowing rather than cutting expenditures.
Prior to the latest drop in oil prices, Venezuelan President Nicolas Maduro had already implemented reduced hours for public workers to lessen energy consumption, including at the state oil enterprise PDVSA. He also declared an economic emergency in Venezuela.
Trump expanded U.S. sanctions on Venezuela and signed an executive order imposing secondary tariffs on nations importing Venezuelan oil, leading to a halt in oil exports that sustain the national budget. The decline in oil prices will exert further pressure on Maduro to cut expenditures.
Iran relies on oil revenues for about a third of its budget, with a benchmark price established at 57.50 euros ($64.38) per barrel. Tehran is also anxious about Trump’s reaffirmed “maximum pressure” campaign targeting Chinese buyers of Iranian oil. China’s continued import of Iranian crude amidst the U.S. trade conflict will significantly impact Tehran’s fiscal health.
“Venezuela and Iran are facing a double blow from Trump. His policies are affecting their oil exports while they also contend with declining oil prices,” remarked Jason Tuvey, deputy chief emerging markets economist at Capital Economics.
(Reporting by Anna Hirtenstein and Ahmad Ghaddar in London, Yousef Saba, Manya Saini and Parisa Hafezi in Dubai, Timour Azhari in Damascus, Marcela Ayres in Brasilia, Fabio Teixeira and Rodrigo Viga Gaier in Rio de Janeiro, Isaac Anyaogu in Lagos, Ana Isabel in Mexico City, Ahmed Hagagy in Kuwait, Vladimir Soldatkin in Moscow, Marianna Parraga in Houston; Editing by Anna Driver)
