Tariff uncertainties hit liquid gold

Courtesy of the tariff-led turmoil and the resultant uncertainty in the global crude markets, a global recession and even depression, could just be around the corner. This is a trying time for crude oil producers, and they desperately need to adapt to the changing scenario. They will be impacted severely, if the crisis continues.

From the producer’s viewpoint, the situation is not at all rosy. They are under pressure from the lowest crude prices since the Covid-19 pandemic. Their respective budgetary balances are now under severe threat. How to meet the gap between projected expenses and the lowering of oil earnings is a big issue for most, if not all.

Earlier this month, Goldman Sachs chopped its expected annual price outlook for West Texas Intermediate (WTI) crude for the next year to $55 a barrel because of the possible stagnation of the US economy.

Oil heavyweight Saudi Arabia is now faced with stark choices. With prices much lower than their breakeven price of US$90 a barrel as per the International Monetary Fund projections, Saudi Arabia may have to accelerate government borrowing and slow or delay spending on its ambitious, futuristic, megalomaniac projects.

Oil-producing nations revisit their annual budgets as lower-than-anticipated crude prices, due to potential US stagnation, warrant serious adjustments

The kingdom’s budget deficit may soar to $67 billion this year, according to projections shared by Goldman Sachs. This is almost double the deficits Saudi Arabia had projected earlier. The price decline threatens to erase tens of billions of dollars of Saudi revenue, along with a planned drop in dividends from state-controlled energy giant Saudi Aramco.

Aramco’s dividends are now expected to fall by a third this year, meaning the Saudi government and its Public Investment Fund (PIF) will receive about $32bn and $6bn less, respectively, Reuters calculations showed. The $925bn PIF, which is steering Crown Prince Mohammad bin Salman’s Vision 2030, also partly relies on oil, including through its shares in Aramco.

“Saudi Arabia is [now] likely to rely on debt financing, and it will have to delay or scale back some planned contracting awards, given that 2024 was already in a twin deficit,” Karen Young, senior research scholar at Columbia University’s Centre on Global Energy Policy, told Reuters while referring to fiscal and current account deficits of the kingdom.

Being among the world’s top crude producers, the Canadian oil sector is no exception. With nearly all of Canada’s proven oil reserves in Alberta, the western Canadian province is the hardest hit by the turmoil. As per Chris Varcoe writing for the Calgary Herald, every $1-a-barrel drop in WTI oil prices over the course of the year would prune Alberta revenues by $750 million.

The Alberta government is striving to overcome this crisis. However, there is a limit to what the province can do. “If we’re in the middle of what could be a global recession, there’s nothing that I or any subnational government can do other than try to weather the storm,” Premier Danielle Smith of Alberta pointed out last week.

The impact will not be limited to the province of Alberta. There would be repercussions on the economy of the entire country. In a somewhat similar situation in 2021, when oil markets were faced with headwinds, a Canadian Energy Research Institute (CERI) report pointed out that Canada’s economic growth would be slowed by 23 per cent through the year.

Brazil is preparing an extra auction this year for stakes in offshore oil areas to boost revenue, Reuters reported. The plan gained steam due to the fall in oil prices and rising global trade uncertainty, the report added. Claudio Castro, governor of the Rio de Janeiro state, said that he planned to hold spending, as Brazil’s budget for 2025 was planned for an average Brent price of $80.79. That has now changed.

Pressure is also mounting on the Russian central bank to lower interest rates despite persistent inflation. Moscow based its 2025 budget on an average price of $69.70 per barrel. That is no longer the case. Similarly, the Mexican government was expecting $62.50/barrel for its oil output.

The price plunge is likely to curb Baghdad’s infrastructure building spree. For Iraq, which depends almost exclusively on oil revenues for spending, crude prices below $70 are a problem.

Nigeria expected to draw more than half of its total revenues from energy exports. Analysts say the government now needs to reassess these targets to reflect the emerging global crude market realities.

Venezuela is faced with twin jabs. Already, President Trump was tightening pressure on Caracas. Even before the recent fall in oil prices, Venezuelan President Nicolas Maduro had to reduce public workers’ hours to curb power consumption, including at the state oil company PDVSA. He also had to declare an economic emergency in the South American country. Lower oil prices will increase pressure on Maduro to curb spending further, Reuters added.

Iran relies on oil revenues for around a third of its budget, with its benchmark price set at €57.50 ($64.38) per barrel. Besides lower global oil market prices, Tehran is also concerned about Trump’s renewed “maximum pressure” campaign, which targets Chinese buyers of Iranian oil. The pressure on Tehran now seems to be intensifying. Oil producers all around the globe have major adjustments to make.

Published in Dawn, The Business and Finance Weekly, April 21st, 2025