The haves and have-nots of the (energy) world

February 24, 2012

Nothing like an oil price spike to bring out the differences between the haves and have-nots of this world. The ones who have oil and those who don’t.

With oil at $124 a barrel,  the stock markets of big oil importers India and South Korea posted their first weekly loss of 2012 on Friday.  But in Russia, where energy stocks make up 60 percent of the index, shares had their best day since November, rising more than 4 percent. The rouble’s exchange rate with the dollar jumped 1.5 percent but the lira in neighbouring Turkey (an oil importer) fell.

Emerging currencies and shares have performed exceptionally well this year. Some of last year’s laggards such as the Indian rupee have risen almost 10 percent and stocks have jumped 16-18 percent. But unless crude prices moderate soon, the 2012 rally in the  stocks, bonds and currencies of oil-poor countries may have had its day. Societe Generale writes:

As oil prices are now flirting with $125 per barrel, it is reasonable to start thinking about the potential impact on global emerging markets of an oil price shock and the currencies likely to gain the most from elevated oil prices and those that won’t….Russia appears as the clear winner of a potential oil price shock, and the rouble is therefore the best hedge against this risk

 The bank advises its clients to buy the rouble and sell the currencies of oil importing Israel and Hungary. In Asia it suggests selling the Korean won. It also recommended exiting long positions on the Turkish lira.

Russia is the clear winner.  Revenues from the energy sector provide half the state’s income and according to the  graphic below from SocGen, oil exports account for 15 percent of Russia’s economy.  At the other end of the spectrum are Taiwan, Korea and Turkey where oil imports make up between 7-12 percent of GDP.

Some details of three of the losers:

a) Turkey. A $10 rise in oil prices would add another $4 billion to Turkey’s current account gap (HSBC)

b) South Korea. Every $10 increase in oil prices cuts the country’s current account surplus by 0.8 percent of GDP ( Morgan Stanley). 

c) India. Every $1 rise in oil prices widens India’s current account deficit by around $1 billion (Standard Chartered)

All emerging markets have benefited in recent weeks from developed central banks ultra-loose monetary policies but for some  the party may be over.

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