With headline-dependent oil price hovering at +/-10% around $100 per barrel, the rates market has been rapidly repricing as bond investors continue to analyse the impact of oil on inflation, monetary policy, and trade balances across developed and emerging economies.

The World Bank provides a very useful chart (below) for identifying which countries are net crude oil exporters or importers (or neither). At a high level, it is not hard to form the view that Asia and Europe are the regions most affected by a higher oil price environment.



🔗 worldbank.org

Some Asian central banks (e.g. Indonesia, and the Philippines) have already started to hike rates, and whilst Asian economies have solid credit buffers overall, the fiscal cost may soon bite after most countries implemented fuel subsidies. The longer-term implications for growth are also yet to be seen, especially given travel restrictions and working-from-home measures. In Europe, most temporary relief measures such as VAT cuts and targeted support have been extended, with fiscal implications for already cash-strapped European governments. The US has mainly released oil reserve to increase supply, with no meaningful household subsidy measures.

On the other end of the spectrum, emerging market economies outside of Asia appear to be net beneficiaries. Not all, however – net oil importers such as Egypt, Turkey and South Africa are facing challenges. But Latin America, the Middle East and Africa contain an overwhelming number of countries either net crude oil exporters or have a balanced imports/exports profile. For instance, Nigeria, Angola, Ecuador, Colombia and Venezuela, have all seen their sovereign bonds outperform since the start of the Iran war, as higher crude prices should support fiscal and external balances.

However, not all net crude oil exporters become winners with rising oil price. Looking beneath the surface, a country’s direct exposure to oil prices is determined by two key factors:

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