Nothing gentle here: Moody's tells GCC states to brace themselves for a 'gentle decline in oil prices'

The effects on the economies of Gulf Cooperation Council (GCC) countries would be negative to neutral under an adverse scenario in which oil prices decline to $90 per barrel (pb) by 2020, said Moody's Investors Service in a Special Comment report published Tuesday. While Moody's central oil price scenario for the period until 2020 anticipates a gentle decline in oil prices, the rating agency has also considered the likely implications of the aforementioned adverse scenario because a number of GCC countries are already experiencing fiscal pressures in the current stable oil price environment.

Moody's adverse scenario is based on the expectation of (1) greater-than-expected new global oil and gas capacity on the supply side; and (2) slower-than-expected commodity demand growth in emerging markets, largely due to the maturing Chinese economy.

"Under such a scenario, sovereign credit quality in the GCC would be affected to varying degrees, with Bahrain and Oman most vulnerable to a potential downward adjustment of their sovereign ratings, given their high fiscal breakeven prices and declining oil production," said Thomas J. Byrne, a Moody's Senior Vice President and co-author of the report.

"The UAE and Saudi Arabia would, despite their large non-oil sectors relative to GCC peers, face reduced fiscal flexibility. Kuwait and Qatar on the other hand have the most headroom and fiscal flexibility to withstand a protracted oil price decline."