S&P's oil vulnerability rankings

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Countries with a lot of oil are economically vulnerable when the price of oil collapses. That's obvious. But how vulnerable are they relative to one another? That's what a new set of rankings from Standard & Poor's tries to do. It's an interesting list, as I reported yesterday. But as a few people have pointed out, distinguishing between these countries' vulnerability to oil prices becomes pretty much a moot point if oil prices start to crash, as they did last year. In a panic, everyone suffers.

The surprising thing about the index, at least from a Gulf-centric perspective, wasn't that Bahrain and Saudi Arabia topped the list (although it does strike me as a bit odd that Bahrain is apparently so vulnerable, despite its relative lack of oil reserves) but that Abu Dhabi ranked so low. It came in 13th.

It appears the main reason for this is a discrepancy was a quirk in the data: on a few key measures involveing external trade, the folks at S&P used UAE-wide figures, not Abu-Dhabi-specific ones. That meant Abu Dhabi's reliance on oil was tempered significantly by the diverse range of economic activities in the rest of the country.

"The reason that Abu Dhabi comes out as less vulnerable in the overall index is because it has a low value on the external vulnerability scale," Mohsin Khan, a senior fellow at the Peterson Institute for International Economics in Washington, D.C. told me in an e-mail. "And the reason for this is clear--for Abu Dhabi the index is based on the share of oil and gas in total exports of the UAE (including, of course, Dubai as well as the other non-oil exporting emirates). This share is 34%. If you calculated the index properly as the share of oil and gas in Abu Dhabi's exports, my guess is you would get a value of at least 70% (about the same as Saudi Arabia). Plugging that value back would greatly increase Abu Dhabi's overall vulnerability."

Interestingly, the S&P report also looked at vulnerability in terms of a country's ability to maintain current budget spending and balance its international trade accounts given a lower oil price. Analysts and economists typically call these "break-even" oil prices. Mr Khan was kind enough to send along recent break-even estimates for a number of oil-producing countries in the region:

      Fiscal Balance        
Current Account Balance
Algeria      60 63
Bahrain      84 52
Iran      90 70
Iraq      94 53
Kuwait      34 34
Libya      53 49
Oman      78 88
Qatar      24 47
Saudi Arabia      54 51
United Arab Emirates      46 53