This article does not constitute a rating action.
Key Takeaways
- Higher oil prices are broadly supportive of the ratings on hydrocarbon-exporting sovereigns. However, they are but one of many important factors we take into consideration in our ratings analysis.
- How governments choose to use any increase in revenues and their longer-term policy stance is also important.
- Significant balance sheet deterioration was a factor in downgrades of certain hydrocarbon-exporting sovereigns since 2015. The ratings on those sovereigns are unlikely to return to their pre-2015 levels, absent changes in rating factors other than oil prices.
Higher oil and gas prices generally help to improve the government budgets and current account positions of hydrocarbon-exporting sovereigns. However, in the view of S&P Global Ratings, the prolonged and in many cases ongoing structural deterioration in their stock positions--government net debt and net external debt--alongside relatively limited fiscal and economic reform momentum, are also fundamental considerations for hydrocarbon-exporting sovereigns we rate.
Our sovereign ratings across the world incorporate a common base case for key commodities, such as oil and natural gas. We recently raised our assumptions for the average Brent oil price to $60 for the remainder of 2021, $60 in 2022, and $55 in 2023 and beyond, from $55, $55, and $50, respectively (see "S&P Global Ratings Revises Oil And AECO Natural Gas Price Assumptions And Introduces Dutch Title Transfer Facility Assumption," published March 8, 2021). Indeed, oil prices are one of many important inputs of our sovereign ratings analysis (see "Criteria: Sovereign Rating Methodology," originally published on Dec. 18, 2017, republished Feb. 5, 2021). A decline in oil prices negatively affects hydrocarbon exporters, including through their fiscal revenues, balance of payments, and GDP.
It should be noted that we differentiate between structural and cyclical changes in oil prices. We lowered most of the ratings on sovereign hydrocarbon exporters since the structural change in the oil market beginning in the second half of 2014. We expect relatively modest oil prices over the longer term. Since our ratings already factor in our view of such structural changes, we do not expect cyclical price changes to significantly affect our ratings.
This is not to suggest that oil prices were our only consideration in revising the ratings of the hydrocarbon-exporting sovereigns since end-2014. For Qatar, for example, oil prices are an important input to the sovereign ratings as its gas exports are largely priced off oil. However, the increase in Qatar's external vulnerabilities due to the imposition of a boycott by a group of largely Middle Eastern governments was a main factor in the 2017 downgrade. For sovereigns generally, important rating factors since 2020 have also been the COVID-19 pandemic's specific country impact and implications for world economic growth.
The policy response of hydrocarbon-exporting sovereigns is of equal if not more importance than shifts in production or commodity prices. When higher oil prices result in higher revenues, governments may choose to allow their fiscal balances to improve or to increase spending to support their economies. As has previously been the case in certain countries, governments may use the reduced pressure on public finances to delay expenditure consolidation measures or diversifying their revenue streams. We assess the impact of oil price developments alongside these and many other factors--such as GDP, inflation, and the sovereign's external position. (Please see our calendar of publication dates in the Related Research section, indicating when we plan to publish reports on sovereigns in Europe, the Middle East, and Africa.)
Even if oil prices return to much higher levels, we would not necessarily expect the sovereign ratings on hydrocarbon-exporting sovereigns to return to their pre-2015 levels, absent changes in other rating factors. Many hydrocarbon exporters have experienced a deterioration in their fiscal and external balance sheets as lower oil prices resulted in sustained and sizable fiscal and external borrowing needs. These have been met either by debt accumulation or asset draw-downs. Even if fiscal and external deficits of hydrocarbon exporters improve in the near term on the back of higher oil prices, it would likely take longer for their stock positions to be strengthened back to pre-2015 levels.
Related Criteria And Research
Criteria
- Criteria: Sovereign Rating Methodology, Dec. 18, 2017, republished Feb. 5, 2021
Related Research
- Research Update: Norway ‘AAA/A-1+’ Ratings Affirmed; Outlook Stable, March 13, 2021
- S&P Global Ratings Revises Oil And AECO Natural Gas Price Assumptions And Introduces Dutch Title Transfer Facility Assumption, March 8, 2021
- Research Update: Kazakhstan ‘BBB-/A-3’ Ratings Affirmed; Outlook Stable, March 6, 2021
- Research Update: Iraq Ratings Affirmed At ‘B-/B’; Outlook Stable, Feb. 20, 2021
- Nigeria, Feb. 16, 2021
- Research Update: Angola ‘CCC+/C’ Ratings Affirmed; Outlook Stable, Feb. 6, 2021
- Research Update: Azerbaijan Outlook Revised To Stable From Negative On Receding Risks From Nagorno-Karabakh Conflict; Ratings Affirmed, Jan. 23, 2021
- Research Update: Kuwait ‘AA-’ Ratings Affirmed; Outlook Remains Negative, Jan. 16, 2021
- Research Update: Russia ‘BBB-/A-3’ Foreign Currency And ‘BBB/A-2’ Local Currency Ratings Affirmed; Outlook Stable, Jan. 16, 2021
- Calendar Of 2021 EMEA Sovereign, Regional, And Local Government Rating Publication Dates, Dec. 17, 2020
- Research Update: Mexico ‘BBB’ Foreign Currency And ‘BBB+’ Local Currency Long-Term Ratings Affirmed; Outlook Remains Negative, Dec. 4, 2020
- Emirate of Abu Dhabi, Nov. 28, 2020
- Research Update: Bahrain ‘B+/B’ Ratings Affirmed; Outlook Stable, Nov. 28, 2020
- Qatar, Nov. 7, 2020
- Research Update: Saudi Arabia ‘A-/A-2’ Ratings Affirmed; Outlook Stable, Sept. 26, 2020
- Research Update: Ecuador Long-Term Ratings Raised To ‘B-’ From ‘SD’ On Completed Debt Exchange; Outlook Stable, Sept. 2, 2020
- Research Update: Colombia ‘BBB-/A-3’ Foreign Currency Ratings Affirmed; Outlook Remains Negative, Oct. 29, 2020
- Research Update: Oman Downgraded To ‘B+’ On Rising Net Debt Levels; Outlook Stable, Oct. 17, 2020
- Research Update: Malaysia Outlook Revised To Negative; ‘A-/A-2’ Foreign Currency And ‘A/A-1’ Local Currency Ratings Affirmed, June 26, 2020
- Research Update: Trinidad and Tobago Sovereign Rating Lowered To ‘BBB-’ From ‘BBB’ On Lower Hydrocarbon Price Assumptions, March 27, 2020
- Various Rating Actions On Hydrocarbon-Exporting Sovereigns After Revision To Our Oil Price Assumptions, March 27, 2020
- Qatar Long-Term Rating Lowered To ‘AA-’; On Watch Negative After Six Arab Countries Sever Ties, June 7, 2017
This report does not constitute a rating action.
| Primary Credit Analyst: | Trevor Cullinan, Dubai + (971)43727113; trevor.cullinan@spglobal.com |
| Secondary Credit Analysts: | Dhruv Roy, Dubai + 971(0)56 413 3480; dhruv.roy@spglobal.com |
| Roberto H Sifon-arevalo, New York + 1 (212) 438 7358; roberto.sifon-arevalo@spglobal.com |
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