Political instability heightened by oil price drop

24 March 2015

Falling oil prices are increasing instability in some producer countries, according to research.

Aon Risk Solutions’ 2015 Political Risk Map said the biggest political risks facing emerging market investors is the increasing instability in already-fragile oil producing countries such as Iran, Iraq, Libya, Russia and Venezuela as a consequence of the low oil price.

The effectiveness of extremist groups in the Middle East and Africa will be amplified in countries that lack the resilience to absorb economic shocks, the report says.

2015 will be a particularly challenging year for oil producers in the Middle East and Africa, several of which already have High or Very High country risk ratings, according to the risk map.

Egypt, Tunisia and Morocco, which should benefit from cheaper oil imports, actually face increased security risks because of the power vacuums in Iraq, Libya and Syria, Aon said.

The company added the low oil price continues to “cast an economic shadow” over the Commonwealth of Independent States region, particularly for Russia’s larger regional trading partners such as Belarus and Kazakhstan.

The Aon map measures political risk in 163 countries and territories to assess the risks associated with exchange transfer, sovereign non-payment, political interference, supply chain disruption, legal and regulatory regimes, political violence, ease of doing business, banking sector vulnerability and governments’ capability to provide fiscal stimulus.

Seven countries have been upgraded (where the overall risk in that country is rated lower than the previous year). They are: Dominican Republic, Ecuador, Georgia, Laos, Panama, Swaziland and Zimbabwe. Twelve countries have been downgraded (experiencing an increase in political risk), including Angola, Central African Republic, Burkina Faso, Ghana, Guinea, Haiti, Libya, Mozambique, Oman, Pakistan, Sierra Leone and Uganda.

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