World Bank: Drop in Oil Prices May Spur Dozens of Emergency Bailouts

January 28, 2016Energyby EW News Desk Team

0

The International Monetary Fund's oil prices have tumbled and show no signs of immediate improvement, particularly as once embargoed Iranian oil begins flooding into the market place this year; officials at the International Monetary Fund (IMF) and the World Bank are preparing for the worst.

Top officials from both organizations are heading to a meeting in Azerbaijan to discuss the possibility of lending as much as $4 billion in emergency relief in what may be the first of a series of bailouts. The collapse in crude oil prices has caused the two institutions to fear for the economic futures of developing nations, particularly in Asia and Latin America, which rely heavily on oil production to bolster their economic growth.

The two organizations fear the situation could not only negatively impact these nations, but also drive nations already experiencing slowdowns, such as Brazil, Ecuador, and Venezuela, into insurmountably deep holes from which their economies may not recover for decades without outside support.

Azerbaijan is particularly vulnerable to the price reductions, as it relies on oil for 95 percent of its exports. The dip in prices and resulting spillover to the common man and woman on the street has led to protests and civil unrest. This, in turn, caused the government of President Ilham Aliyev to petition the World Bank and the IMF to put Azerbaijan at the top of the list for bailout assistance.

In an effort to control the worsening impact of the collapse in oil prices, Azerbaijan (a former Soviet republic) resorted to capital controls last week, imposing a 20 percent tax on exporting foreign currency. The currency of Azerbaijan, the manat, has fallen more than 35 percent since December when the government announced it had depleted half its reserves in a year.

According to the Financial Times, the World Bank and the IMF are discussing with the Azerbaijani government a number of measures, short-term and long-term, designed to counter the pressure the nation's currency is experiencing due to the drop in oil prices.

Even so, the World Bank predicted earlier this week that prices for crude oil will likely average a mere $37 per barrel in 2016, and warned that this may have long-term consequences on the global economy as well as on individual economies like Azerbaijan.

Oxford Economics weighed in on the issue this week, noting in a message to its clients that, "These are bad times for oil producers and their creditors ... History provides reason for extreme pessimism on the likely fortunes of commodity producers; suggesting that [developing nations] are prone to default and that commodity slumps are possibly the biggest cause of defaults."