Political risks on the rise because of low oil price

18 March 2015 Consultancy.uk

The massive decrease in the price of oil is causing more and more pressure to be heaped on businesses in developing countries. Oil producing countries may face financial problems, which increases the risk of political meddling in the economy and problems with payments.

The business climate in developing countries is under more and more pressure, partly due to the plummeted oil price. Countries that are largely dependent on the sale of oil may find themselves in financial problems, which then impacts business life. To gain insight around the political risks, and the most risky regions, risk management advisor Aon produces and publishes a yearly ‘Political Risk Map’.

Aon - Political Risk Map

Political risks
According to the consultancy the solvency of developing countries’ governments as well as payments in hard currencies will come under pressure in 2015. The possibility of political meddling in the economic affairs is also a real risk in the coming period. The low oil price means a decrease in government income for oil producers and this increases the risk that they will not be able to meet their financial obligations. Other risk factors highlighted by the financial consultancy include the conflict in East-Ukraine, the activities of groups like Islamic State in the Middle-East and Boko Haram in Africa, but also the expectation that the US will increase interest rates.

Risk regions
The research covered 163 developing nations. African countries will be the hardest hit by the low oil price. Among others Somalia, South-Sudan, Sudan and the Democratic Republic of the Congo belong to the group of the countries bearing the most risk. Countries in the Middle-East appear to be better prepared for the consequences of decreased income as many have built up vast currency reserves to buffer the low prices. Still a few countries along the Arabic peninsula are on the list of the 20 most risky regions, which includes Syria and Iraq. Aon points out twelve economies that are running greater risks around political problems than a year ago, while seven countries have become relatively safer since last year in terms of business climate.

Aon - Interactive Risk Map

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