Oman and the UAE, which have had strong trade and investment links with Iran in the past, would likely benefit most from the lifting of trade sanctions on Iran because this would open the way for increased trade and investment flows, Moody's Investors Service has said.
However, in the absence of an offsetting decline in output by other producers, increased Iranian oil exports would inevitably depress oil prices, a credit negative for oil-dependent sovereigns, including Oman, according to the credit ratings agency.
In a report titled 'Iran nuclear deal would add to oil supply in 2016, a credit negative for oil exporters' Moody's said, "In the absence of an offsetting decline in output by other producers, increased Iranian oil exports would temper the US$5 a barrel increase in oil prices we forecast for 2016, a credit negative for oil-dependent sovereigns, especially Oman, Bahrain, Venezuela, Russian and Nigeria."
It said that sovereigns without the ability to expand oil production and without fiscal buffers would be most affected. "Weaker sovereigns in the GCC that have limited scope for production increases and weaker fiscal buffers include Oman and Bahrain. Both countries' fiscal and external positions would recover more slowly or deteriorate more sharply than otherwise with weaker oil prices."
On July 14, major world power reached an agreement with Iran requiring the country to curb its nuclear programme in exchange for a gradual lifting of economic and financial sanctions.
Lifting of sanctions would likely benefit Oman and the UAE because this would open the way for increased trade and investment flows, Moody's noted.
"Growth in Oman-Iran bilateral trade would probably increase relatively quickly once sanctions are lifted, given the geographical proximity and historical ties, which should benefit both exports to and imports from Iran," Steffen Dyck, senior analyst at Moody's sovereign risk group and co-author of the report, told Muscat Daily.
According to Moody's, Oman's merchandise trade with Iran, ie, export and import of goods, accounted for only one per cent of Oman's total trade and GDP in 2014.
Dyck said Oman's economy would benefit from rising exports to Iran if they help to diversify the export mix away from oil, which is currently about 65 per cent of total goods exports. On the import side, he said, easier access to Iranian gas would be beneficial, although progress has been made there already.
"Services exports (travel, logistics, financial and communication services) would benefit if Oman manages to capitalise on its comparatively closer relations, however competition with the UAE and Dubai in particular would also intensify. For the UAE, exports to Iran account for a much larger share already."
Given Oman's high fiscal breakeven oil price - the latest estimates by the IMF put it at US$94.3 per barrel in 2015 and US$96.8 per barrel in 2016 - and limited room for substantial production increases for oil and gas production, Dyck said, "we project a fiscal deficit of around nine per cent of GDP for Oman this year and eight per cent in 2016."
He said weak oil will also impact Oman's nominal GDP, which he sees falling by almost 18 per cent in 2015 from 2014.
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