Iran, Venezuela, Russia May Face Pain from Cratering Oil Prices

Falling oil prices are good news for the average U.S. consumer. But tanking oil is likely to crimp the fiscal budgets of regimes like Iran, Venezuela and Russia — regimes that have proved antagonistic to the U.S.

The slide in prices, first set in motion by surging U.S. shale production and a slowdown in China’s economic growth, intensified last week with the decision by the Organization of Petroleum Exporting Countries to maintain its 30-million-barrel-a-day production quota.

The OPEC move, or lack thereof, has led to the price of a barrel of Brent crude LCOF5, -0.34% nosediving below $70 Friday, its lowest close since May 2010.

Brent rebounded Monday afternoon, but prices remain sharply below their 52-week high of $112.59 set in June. Light, sweet crude oil CLF5, -0.96% also is hovering at multi-year lows, even after enjoying a similar Monday rebound.

The emergence of U.S. shale-oil producers has been referenced as a major contributor to the oversupply in oil. It’s the U.S. oversupply that OPEC is trying to tackle with its decision not to cut oil production. Read: Can Saudis beat North Dakota in an oil price war?

For oil-rich states that depend on oil for most of their revenue the slide is potentially disastrous. “Civil unrest is likely to increase in those countries due to their inability to fund subsidies that have acted to bribe the population,” offered David Kotok, chairman and chief investment officer of Cumberland Advisors.

A widely used measure of the impact of oil prices on major producers’ governments is the fiscal breakeven price. That’s “the average price at which the budget of an oil-exporting country is balanced in a given year,” according to Standard & Poor’s. Estimates of fiscal breakeven prices can vary considerably based on a variety of factors including actual budget expenditures, and differences in oil production forecasts.

In most cases, the oil price necessary to balance the budgets of major oil producing countries is above $100 a barrel in 2015, according to data from Citi Research’s Edward Morse.

Venezuela, already facing serious fiscal woes and rampant inflation, needs oil at $151 a barrel next year to balance its budget, according to the data.

Iran, which has yet to agree to curb development of nuclear weapons and heavily subsidizes gasoline for its citizens, needs oil at $131 a barrel.

And Russia, whose seizure of Crimea and continuing aggression towards Ukraine has raised tensions throughout Europe and inspired western financial sanctions, needs oil at $107 for a chance of getting its finances in order.

Based on Citi’s research, Libya looks as if it could be facing a serious fiscal hole, with its breakeven for 2015 at $315.

Here’s a look at other notable oil producers and their fiscal breakeven points for 2014 and 2015, according to Citi Research’s data.

Source: MarketWatch