PREPARED BY PRESENTED ON

ANKITA KUMARI JULY 2020

MAYANK ANAND

OIL
SECTOR
(OPEC COUNTIES SPECIFIC)

Countries Covered

Iran Kuwait
Saudi Arabia Venezuela
Iraq UAE
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Global growth is projected at –4.9 percent in

2020, 1.9 % points below the April 2020 World

WORLD
Economic Outlook forecast. In 2021 global
growth is projected at 5.4 percent. Overall, this
would leave 2021 GDP around 6.5 % points

ECONOMY lower than in the pre-COVID-19 projections of

January 2020. The adverse impact on low-
income households is particularly acute,
imperiling the significant progress made in
reducing extreme poverty in the world since
the 1990s.

The COVID-19 pandemic and the economic shutdown in

advanced economies and other parts of the globe have
disrupted billions of lives and are jeopardizing decades of
development progress. This pandemic has had more
negative impact in the first half of 2020 than anticipated,
and the recovery is projected to be more gradual than
previously forecasted.
The baseline forecast envisions a 5.2 per cent contraction
in global GDP in 2020, the steepest global recession in
eight decades, despite unprecedented policy support. Per Economies in recession
capita incomes in the vast majority EMDEs are expected
to shrink this year.

Economic disruptions are more likely to be severe and

protracted in countries with larger domestic outbreaks,
greater exposure to international spillovers (particularly
through exposure to global commodity and financial
markets, global value chains and tourism). Growth
forecast for all regions have been severely downgraded.
Latin America and the Caribbean (LAC) and Europe and
Central Asia (ECA) have large downgrades partly due to
the size of their domestic outbreaks and exposure to Global Growth
global spillovers, while South Asia's substantial
downgrade is primarily the result of stringent lockdown
measures.

Commodity price changes since

January 2020

*Source: World Bank

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Global oil demand is expected to remain in

stress in 2H2020. Global oil production has
been cut by 9.1 mb/d in 1Q2020 and 17.3

WORLD mb/d Y-o-Y in 2Q2020. Due to

production cut and steady unlocking of
this

economies, oil prices have recovered in may

OIL SECTOR and will continue to do so if no new
outbreak in COVID-19 cases is observed.
OPEC's output fell to 3 decade's low at 22.7
mb/d in June. Oil supply has also declined
by 3.2 mb/d Y-o-Y and is currently on decline
by most of the oil producing countries
except Norway, Guyana, Australia and Brazil.

The COVID-19 pandemic has left global oil industry

and dependent oil economies shattered. Crude oil
prices saw its deepest decline in past 2 decades.
The US May future contract turned negative for the
1st time in history. Oil sector across the globe has
been impacted by imposed lockdown in major oil
consuming economies. EIA forecasted the global
demand for petroleum and liquid fuel will average
to 83.8 mb/d in second half of 2020, lower by 6.6
mb/d during the same period in previous year.
Halted road transportation, manufacturing,
shipping, aviation and other heavy oil dependent
sectors are pulling the demand and prices down.
The US shale companies are in great trouble owing
to declining oil prices as they incur huge extraction
cost. Though the US Fed is trying its best to
support the energy sector through purchase of
corporate bonds and direct lending yet more than
200 shale companies has shut their business in
North America since 2015.

Till 2019, global oil reserve stood at 1734 billion

barrel, down by 2 billion barrel from 2018, of which
more than 70% of global oil reserve lies with OPEC
nations. The top countries in terms of reserve
holding are Venezuela (17.5%) followed by Saudi
Arabi (12.5%) and Canada (9.8%). Of lately, United
States has become the largest oil producing nation
with more than 18% of world oil production. The
global Reserve/Production ratio shows that oil
reserve in 2019 will account for next 50 years of oil
production. The global oil demand will also be
under stress due to increasing use of alternative
fuel in the world.

*Source: OPEC
EIA
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The recession in Iran accelerated in FY20 as US

sanctions progressively tightened. Iran’s GDP
contracted by 7.6% in the first 9 months of
ISLAMIC REPUBLICAN OF 2019-20, largely due to a 37% decline in the oil

IRAN
sector. Since the reintroduction of US
sanctions in 2018, oil production has dwindled
reaching a record low of 2 mbpd in December
2019. Non-oil GDP growth in Apr-Dec 2019 was
close to zero. In the same period, non-oil
industries grew by 2% driven by construction
and the utilities sectors, while services value-
added contracted by 0.2%.

Economy
The recent COVID-19 outbreak has significantly
disrupted trade, tourism and retail business during
the busiest period for travel and commerce. Facing a
growing pandemic, low oil prices and increasing
sanctions, Iran’s GDP growth is projected to remain
subdued in the coming years. The baseline outlook is
primarily driven by COVID-19 outbreak reducing oil
and non-oil GDP in FY21 and two subsequent years of
modest recovery. Oil production in FY22 and FY23 is
expected to grow in line with long term domestic Gross domestic product (constant prices)
consumption growth. The fiscal deficit is projected to
widen as revenues fall short of targets and COVID-19
adds to expenditures. The current unique situation of
Iran’s economy presents significant downside risks
for the baseline forecast. The most significant risk is a
stronger and more protracted impact of the COVID-
19 outbreak through various channels including
widescale contractions in commerce, tourism and
trade as well as higher production costs. Persistence
of lower oil prices and export volumes (e.g., due to a
significant decline in China’s oil demand) would result Unemployement and Inflation Rate
in a substantially larger overall shock and fiscal
deficit in 2020/21.

Oil Sector (Iran)

Even before the coronavirus pandemic erupted, Iran’s

oil exports were declining as a result of secondary US
sanctions. Iran's crude oil exports were slashed by
more than 80% after U.S. President Donald Trump
withdrew from a multilateral nuclear deal with the
Islamic Republic in 2018 and reimposed sanctions.

Iran's Export & Import

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Due to this reimposition of sanction, oil production of

Iran starts to decline as we can see in the figure.
Supply from Iran is expected to decline further by 1.2-
1.5 mbpd during the forecast period (2018-2023)  with
estimated decline of over 1.2 mbpd already seen in
2019.As per the National Iranian Oil Company, the
pandemic has not had any major effect on the oil
production of Iran.
Prior to the US withdrawal from the Joint
Comprehensive Plan of Action, (JCPOA) in May 2018,
Iran was  selling  2.5 million barrels of oil a day,
primarily, to customers in Asia. Among the countries
Crude Oil Production
purchasing Iranian oil was India (in addition to China)
—one of the world’s two largest energy consumers.

Crude Oil Exports Crude Oil Reserves

Outlook

With its rich oil and gas resources, Iran will not be eliminated from the energy market, but, given the
glut in world supply and the temporary collapse of demand, it will have less of a chance to play an
active role in the market. Iran needs foreign investment and technology to increase its production
capacity, but that will be hard to achieve without a resolution of US-Iran tensions and an easing of US
sanctions. Iran’s energy sector also  needs  a better legal framework and a more efficient and rapid
decision-making process to incentivize foreign participation in an uncertain market.

*Source: World Bank,

International Trade Centre
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The Saudi Arabian economy has been

drastically impacted. Its GDP at constant price

SAUDI
has registered 1% negative growth in 1Q/2020
resulting from 4.6% contraction in Oil sector.
IMF has forecasted the sharp contraction of
6.8% in its GDP for current year owing to

ARABIA
turmoil in the oil sector. Export registered
20.2% decline in 1Q/2020 on Q-o-Q and import
registered 11.9% decline on Q-o-Q. According to
the IMF, the profitability thresold for Saudi
Arabia is at $76/barrel, which is almost double
the current ongoing oil price. So, deep fiscal
deficit is expected in the Saudi economy.

Economy
COVID-19 pandemic has thwarted the countries'
revenue diversification plan as major non-oil sectors
are completely shutdown. The revenue segment has
undergone a major hit due to the lowest dip in crude oil
prices which contribute to more than 75% share in
country's total export, ongoing engagement in Yemen
war and astronomical expenditure on social welfare
after Arab Spring in 2011. Country is now heavily
dependent on its foreign reserve for meeting
expenditure as its reserve decreased by $48.6 Bn in the
month of April & May to touch the lowest level of
$448.6 Bn in 2 decades. Its largest company, Saudi
Aramco also recorded 25% decline in its revenue in
Q1/2020. The most significant risk for their economy
after oil prices will be the closure of their Travel &
Tourism sector which contribute to 20% in non-oil GDP
and registers highest footfall of Muslim population.
However, country is coping up with the loses through
its Sovereign Wealth Fund PIF which is making
strategic decisions to acquire the blue-chip companies
across the globe at lowest price during this crisis. PIF
has acquired assets worth $7.7 billion in Q1/2020 and
has also acquired 2.32% stake in Indian company
Reliance Jio platform. Apart from this, central Bank has
also announced a SAR 120 Bn financial stimulus to
mitigate the COVID-19 impacts on the economy.

Oil Sector (Saudi Arabia)

The share of Oil export in Saudis Total export is more
than a third quarter which makes it very vulnerable
during the ongoing COVID-19 pandemic. In the month
of March, Saudi Arabia and Russia engaged in a price
war which led to over-supply of oil in the market and as
a result oil prices plunged, taking a huge hit on the
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Saudi Arabia's economy. Later on, OPEC and OPEC+

members agreed to a production cut of 9.6 million
barrel per day(mbpd) from the month of May, led by
Saudi Arabia who bore the brunt of 1 mbpd extra
production cut to stablize the oil prices.
Saudi Arabia has the proven oil reserve of 270 billion
barrel with extraction rate of 1.2-1.5% every year. It
holds the largest share of 30% in OPEC oil export.
China is the major destination for export. But owing to
the increased volatility in oil prices since 2014, country
has decided to diversify the government's revenue on
Crude Oil Reserve and No. of Years
the line of Vision 2030 document which aims to
available for Production
increase the non-oil government revenue from SAR 163
billion to SAR 1 trillion.

Crude Oil Export

Saudi Arabia Outlook- Vision 2030

With an aim to diversify its economy from an oil dependent nation to balanced economy, Saudi Arabia
came up with a vision in the year 2016. The major Highlights of this Vision 2030 document has been
discussed below:
Tourist Destination- Aims to develop the country as a major tourist destination through the most
sacred mosque in the world and increase the Umrah visitors from 8 million to 30 million every
year by the end of 2030. Also, double the number of heritage sites registered under UNESCO
Epicenter of Trade for 3 continent namely Asia, Africa and Europe
Non-oil sector- Aim is to increase the non-oil government revenue from SAR 163 billion to SAR 1
Trillion and to raise the share of non-oil export to non-oil GDP from 16% to 50%
Localize the Oil & Gas sector from current 40% to 75%. Along with it, Saudi is blessed with other
resources as well so they will strategically use other resources such as Gold, Uranium,
Potassium,etc.
FDI- Aim to become of the most attractive global investment destination and increase the share
from 3.8% to 5.7% of GDP
Privatization- Government is trying to increase the engagement of private sector in the economy
to make it more competitive. They aim to increase the private contribution in GDP from 40% to
65%
Cultural & Entertainment sector- It aims to increase household spending on entertainment from
2.9% to 6% and also support SME sector to boost the economy

*Source: World Bank, General Authority of Statistics

(Saudi Arabia),ITC Trade map
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Iraq is in a fragile situation. It faces a difficult

fiscal crunch, arising from the collapse in

IRAQ
international oil prices coupled with persistent
political and social turmoil. This situation is
exacerbated by the rapid spread of COVID-19,
which the country’s healthcare system has
limited capacity and limited fiscal buffers to
contain and manage.

Economy

The outlook for Iraq, which was already negative prior

to the COVID-19 shock, has markedly worsened since.
The near-term economic growth will be subdued by
low oil prices and unfavorable global conditions
including disruptions from the COVID-19 spread
which are projected to put growth on a declining
trend. GDP growth is projected to contract by 5% in
2020 and revert to its low-base potential of 1.9 - 2.7%
in 2021-2022. The political and social turmoil and lack
of reforms to boost private sector participation will Gross domestic product (constant prices)
continue to put pressure on the services sector. As a
result, non-oil GDP growth is expected to decelerate
to 2.7% by 2021.
With the risks such as significant losses from religious
tourism, weaker demand on Iraqi oil exports from
China, and further delays of a $10 billion oil-for-
infrastructure investment deal with China leads the
country to cut the spending a move that could fuel
more social unrest with already poor public services
and high unemployment.

Unemployement and Inflation Rate

Oil Sector (Iraq)

Iraq has planned to augment its crude oil export

facilities to improve offtake of oil from its developing
oil fields. This included upgradation of export port
infrastructure and laying new pipelines. As per the
plans of the Iraqi Government, port infrastructure of
6.5 mbpd would be built in southern fields. Additional
1 mbpd capacity would be achieved by building
pipeline from Kirkuk to Ceyhan.  
Iraq's Export & Import
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In the past, the drop in crude prices, coupled with the

war against the Islamic State of Iraq and the Levant
(ISIL) in northern Iraq that began in mid-2014, caused
Iraq’s budget deficit to grow.
In the recent development, Iraq has agreed with
major oil companies operating its giant southern
oilfields to cut crude production further in June and
the reason behind is to improve its compliance with
its  output cut targets  under a global deal with OPEC
and its allies to reduce oil supply. Crude Oil Production
Iraq is cutting its  oil  output by around 700,000 barrels per day (bpd), a third less than required under
an OPEC+ supply pact, after it failed to persuade international oil majors operating its giant fields to
agree to deeper reductions.
The inadequate government budget is
another critical bottleneck in Iraq’s
oil  growth especially when crude oil prices
have fallen to ~$40 per barrel. Due to
plunging  oil prices and high costs
associated with  the conflict against ISIS
militants, the government does not have
enough cash flows to meet its contracts
with IOCs.

Crude Oil Exports

Outlook

Being mostly dependent on the oil for its revenues (almost 90% of national budget), Iraq has faced
a 50% drop in the revenues and in the coming days will face a huge decline in the revenue as the
world's second largest oil producer cuts almost 1 mbpd production according to the agreement
with the OPEC+ which is below the target cuts means country needs to cut more production to
meet the OPEC+ targets. Also this pandemic affects the world oil demand as the countries are in
lockdown which results in shutdown of railways, airways, and even less vehicles on roads.
So in the near future, Iraq is going to face huge problems due to its over dependency on the oil.

*Source: World Bank,

International Trade Centre
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Kuwait's GDP is expected to grow at

0.8% rate than earlier projected 2.8%.

KUWAIT Its Non-oil GDP is expected to contract

by 2.5% according to IMF but its central
bank has more pessimistic forecast of
contraction by 4%. However, its non-oil
activities will rebound by 2021 owing to
more participation by government.

Economy
The recent COVID-19 pandemic has hit almost all the
countries in the world but majorly the oil dependent
nations. Kuwait's 1st quarter GDP is expected to
contract by 1.1% as it has the fourth highest number of
COVID-19 positive cases in Arab world. Amidst the
pandemic, Kuwaiti government has approved its foreign
expats bill to push foreigners from the country owing
to job losses for its nationals. Indian community will be
the worst affected of this decision as they make the
largest foreign expats in Kuwait. Kuwait, like other gulf Gross domestic product 
nations is also on its way to diversification. It has
started building the largest mega project of the country
called Silk city in partnership with China by 2035. China
is emerging as its largest trade partner. China is
emerging as its largest trade partner. Plummeting oil
prices has posed huge threat on the continuation of
such projects. Its fiscal deficit is expected to reach KD
13 bn i.e. 40% of it GDP (lat year it was 9%), the highest
since Iraqi Invasion. KD 16 bn has depleted from its
general reserve this year.
Central governments are taking all possible measures
to contain the impact but the brunt will be significantly
Unemployement and Inflation Rate
noticeable. Kuwait is the forth richest economy of the
world according to World Bank, with $71,929 as per
capita income.

Oil Sector (Kuwait)

After the discovery of oil reserves in Kuwait, it

progressed to become of the most richest country of
the world but its dependence on oil revenue is taking a
toll on the GDP during COVID-19 pandemic. oil
constitute to 46.5% of Kuwait's GDP and need
$81/barrel of oil price to balance its expenses.
Kuwait's Export & Import
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However, oil prices has been trading at its lowest since

the month of March. Kuwait oil output will fall by 8%
this year on an average of 2.46 mbpd in 2020 and 2.42
mbpd in 2021.

Kuwait has a total of 101.5 billion barrel oil reserve

constituting to 10% of total OPEC oil reserve with
annual production of 2.74 mbpd. Oil export accounts to
81% of its total export and 9% of OPEC's total export.
Country is trying to diversify its revenue and shift away
from oil, however there are various challenges in it. Crude Oil Production

Outlook

As Kuwait has a significant share of Oil reserve in OPEC total oil reserve, it will continue
to thrive once oil prices start recovering. It aims to increase its production capacity by
2040 to become the 2nd largest producer after Saudi Arabia. However, government share
in the country's activities needs to decline. Kuwait will focus on the privatization of its
economy to create more jobs for its nationals. Also, measures need to be taken to
improve the non-oil revenue share because currently Retail, Transportation and
Hospitality constitute to less than 105 in country's GDP. Business environment needs to
be improved to carry on with similar to Silk City mega projects.

*Source: World Bank, ITC Trade Map,

FRED, Ministry of Statistics (Kuwait)
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Venezuela’s depression appeared to

deepen in the first quarter as the
economy reels from the Covid-19 fallout

VENEZUELA and is poised to be among the hardest-

hit countries in the region due to its
dependence on oil exports. Dwindling
refining capacity amid trickling oil
output and U.S. sanctions have resulted
in gasoline shortages, spawning black
markets and causing prices to balloon.

Economy

Being the world's largest oil producer, Venezuela has

faced the most in COVID-19 situation. The economy
is set to shrink for the seventh year running in 2020.
Falling global demand for fuel and U.S. sanctions will
cause oil output to crater, hampering the chief
engine of economic activity and source of foreign
exchange. In turn, government consumption should
decline, complicating the state’s capacity to supply
vital services to fight the pandemic amid brewing Real GDP growth (Annual percent change)
civil unrest. The LatinFocus Consensus projects the
economy to contract 19.6% in 2020, which is down
2.0 percentage points from last month’s forecast.
According to LatinFocus Consensus, in 2021 GDP is
going to shrink about 1.0%.
As we can see from the graphs only that the US
sanctions have costs the economy a lot. Real GDP
declines heavely and the inflation touches sky high.
Even the trade for the country is not so good in the
previous year.

Inflation Rate

Oil Sector (Venezuela)

Oil production in Venezuela, the country with the
world’s largest reserves of crude, has fallen to a 75-year
low with U.S. sanctions continuing to cripple the
country’s exports.Its slide is a result of U.S. sanctions
that have scared most of the world’s oil buyers away
from Venezuelan crude, resulting in a storage glut that
forced it to shut fields across the nation.

Venezuela Export & Import

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Venezuela’s economic meltdown has devastated many

forms of infrastructure critical to the operation of the
oil industry, from crude oil upgraders to transmission
lines. The degraded state of oilfields, equipment, and
Venezuela’s power and transport infrastructure in
general will create operational bottlenecks to ramping
up oil production, lengthening the amount of time
needed for output to increase. It will also increase
costs for companies considering re-entry or
production increases and necessitate thorough
assessments of the state of infrastructure before any Crude Oil Production
investment decision can be made.

There are numerous challenges to recovering

Venezuela’s oil sector and it will take months
or even years for substantial amounts of
investment to flow in. A new government in
Venezuela will therefore confront the
difficult task of managing the population’s
expectations and developing a multifaceted
economic recovery plan.

Crude Oil Export

Outlook

Venezuela’s battered economy and oil industry now face the triple threat from low oil prices,
plunging global demand, and the spread of the coronavirus. Venezuela has started shutting down
gasoline stations across the country as a  shortage of fuels  has prompted rationing. Although the
timing and nature of a political transition in Venezuela are uncertain, there is little doubt that the
oil and gas industry will be the immediate linchpin of an economic recovery under a new
government. With Venezuela’s state oil company in disarray, international oil companies will be the
key to tapping the country’s oil resources.

*Source:IMF,
International Trade Centre
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United Arab Emirates (UAE) is one of the

most diversified economy amongst Gulf

UAE
Cooperation Council (GCC) but is faced
with worst challenge posed by COVID-
19. On one side, Global economy is
expected to contract by 4.9% and UAE' s
economy is expected to contract by
3.5% in 2020 owing to contraction in
non-oil activities by 4.1%, according to
IMF world outlook.

Economy

The UAE's economy shrank by 1% in the first quarter of

2020 with its non-oil GDP down by 3%. The economy of
United Arab Emirates are based on diversification and
tourism is one of the largest non-oil segment. The
dependence on oil for its revenue has been reduced
from 85% in 2009 to 35% in 2019. The Purchasing
Manager Index (PMI) also witnessed its sharpest decline
for MENA (Middle East and North Africa) countries.
UAE has been known for its big real estate projects led
Gross domestic product (constant prices)
by Dubai but all these activities has been thwarted by
the ongoing pandemic. Central Banks has taken various
majors to cope up the impact of COVID-19 on economy
such as financial stimulus of AED 100 billion to retail,
SMEs and corporates hit by pandemic. Also, 20%
reduction in electricity and water bills has been
provided to Tourism and Hospitality sector to cope up
with the loses and deferred payment of loan by next 6
month.
UAE is the second largest economy in middle east after
Saudi Arabia with GDP of AED 1486.26 billion in 2019.
The major contributor to the GDP is its non-financial
sectors accounting to 84% . During the past decade, its
GDP at constant price grew at more than 45%. But
COVID-19 has posed much uncertainty on its growth
owing to dependence on oil.

Oil Sector (UAE)

With the share of more than a third in national GDP, oil

sector play a vital role in the growth of the economy.
With economies grappling with uncertain lockdown, oil
prices declined to its lowest. To tackle declining oil
prices, UAE agrees to cut the production by 1.36 mbpd
from 1st may 2020. Unemployement and Inflation Rate
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UAE has a total of 97.8 Billion barrel with 8.3% share in

OPEC oil reserve and produces around 3 million barrel
per day (mbpd). Also, UAE economy is very well
diversified as its oil export is less than 33% of total
export and has around 12% share in OPEC oil export.
However, the two major emirates of UAE i.e. Abu Dhabi
and Dubai have different take on parting away from oil
revenue, Abu dhabi being the conservationist.
India is the largest export partner of UAE and as
demand for crude oil crippled in globe, UAE is faced by
deep challenge. But these challenges can be overcome
owing to the large reserve in its Sovereign Wealth
Fund. GCC members are using their investment fund to
manage their economic loses.

Outlook

Oil prices are expected to recover with the opening up of several economies through the
world. However, the UAE's dream of diversifying its revenue looks gloomy. The real-
estate prices are running at very low along with minimum operation at world largest
airport situated at Dubai. Dubai is also experiencing the migration of its expats due to
very expensive living cost, who constitute to 90% of its population. This will hamper the
economy of Dubai which is based on corporate, skyscrapers and tourism. Hence, United
Arab Emirates need to focus more on providing sustainable living conditions to the
expats along with looking to reduce their oil dependence.

*Source:IMF, ITC Trade Map,

FRED