US tariffs weigh on oil economies

A steep drop in crude oil prices largely due to US President Donald Trump's tariffs will squeeze budgets of emerging market oil exporters, analysts said, while the potential economic slowdown could also curb any benefits for importers.

Concerns about the impact of a tit-for-tat trade war on global growth and demand for oil sent Brent crude prices plummeting by more than 20% within a week to a four-year low after Trump announced his sweeping tariffs on April 2.

Prices have since recovered some ground to around $66 per barrel from below $60.

Turkey, India, Pakistan, Morocco and much of emerging Europe relying on oil imports are set to see some benefits from lower prices of crude. But oil exporting states including Gulf countries, Nigeria, Angola, Venezuela and to some degree Brazil, Colombia and Mexico will feel the pain of losing a chunk of hard-currency revenues, investors said. Current oil prices are well below the average budget assumptions of $69 across main oil exporters' year-ahead projections, as calculated by Morgan Stanley, flagging Angola and Bahrain as the countries most sensitive.

The drop in the price of crude is also undoing frontier markets debt trades that had held up for at least a year, JPMorgan said in a research note. It cited the Nigerian carry trade, which involved investing in the oil exporter's Treasury bills on bets the naira currency will not depreciate quickly against the dollar. Investors now risk incurring losses if the lower crude price hits the naira.

Gulf oil producers like Saudi Arabia and the UAE could weather the storm better, economists said, adding that, still, a drop in revenue could complicate their ability to spend on new projects, including de facto OPEC leader Saudi Arabia. On paper, emerging market oil importers should enjoy benefits from lower import bills, improved current account deficits and a positive impact on inflation pressures - but they also face risks.