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."
