From Baghdad and Algiers to Caracas, many of the world’s oil capitals are experiencing a summer of discontent. It could be a glimpse of their future. Iraq has seen fatal protests as its electricity grid buckles amid searing heat, while Venezuela’s oil production has sunk to a 75-year low. In Algeria’s capital, tension is simmering as the hardship of virus lockdowns brings the risk of renewed demonstrations and riots.
“The shaky six of OPEC — Algeria, Iran, Iraq, Libya, Nigeria, Venezuela — are facing a very precarious political and economic outlook,” said Helima Croft, head of commodity strategy at RBC Capital Markets LLC. OPEC’s revenue is down about 50% from a year ago, and members’ long-running financial ailments are coming to the fore.
Oil-dependent Angola is seeking to increase a $3.7 billion International Monetary Fund loan by $800 million. The country and Nigeria have devalued their currencies as a shortage of foreign exchange hammers local businesses. Iran — battered by the twin shocks of U.S. sanctions and the virus — and neighboring Iraq have also reached out to the IMF.
Even Saudi Arabia isn’t immune, rolling out a slew of austerity measures last quarter while contending with the tripling of its budget deficit to 109.2 billion riyals ($29 billion).
The strain has been showing for a while now. Last year, popular revolts forced the resignation of Iraqi Prime Minister Adel Abdul Mahdi, and ended the 20-year rule of Algeria’s Abdelaziz Bouteflika. The prospects for petrostates have dramatically shifted from just a decade ago. Oil prices were near $100 a barrel then and consumers were worried about supplies running out. Now, OPEC is increasingly having to reckon with the prospect of peak demand, when consumption starts to decline as wind and solar power become more popular.
The International Energy Agency expects this turning point in the history of the industry could be just about a decade away. Covid-19 could make it even sooner.
Oil Demand Plateau
The IEA anticipates a marked slowdown in consumption growth after 2025
Source: International Energy Agency’s 2019 World Energy Outlook
In May, BP Plc boss Bernard Looney said that remote working could erode the need for transport fuels and speed up the shift from hydrocarbons. Having consumed about 100 million barrels of oil each day last year, the world’s thirst for petroleum may never be as intense again.