The 2014 fall in global oil prices, from over $100 a barrel to around $50 a barrel, reduced the export proceeds of the world’s main oil- and gas-exporting economies by about $1 trillion. After a decade of largely uninterrupted high oil prices, this dramatic swing has tested the economic resiliency and political adaptability of oil-exporting countries. One of the best single measures of the resilience of an oil- or gas-exporting economy is the oil price that covers its import bill—the external breakeven price.

Brad W. Setser Steven A. Tananbaum Senior Fellow for International Economics Cole Frank Research Associate, Geoeconomics

A plot of external breakeven prices helps illustrate the relative vulnerability of different oil-exporting economies. An external breakeven below the global oil price indicates a potential for either additional budget spending or currency appreciation; a breakeven price above the global price indicates an underlying pressure for budget cuts or currency depreciation.

Most analyses of oil-exporting economies focus on their fiscal breakeven price—the oil price that allows the government's budget to balance. This measure is intuitive but suffers from important limitations: budget revenue from oil is not always transparently reported, spending is often kept off-budget, and the actual calculation is country-specific, impeding accurate comparisons across countries. In contrast, external breakevens can be calculated in a consistent way across time and across countries, using data that is relatively easy to verify.

Changes in external breakeven prices have consequences for the geopolitical positions of the major oil exporters. Rising oil prices can enable the pursuit of the strategic aims of major oil-exporting economies as financial assistance to allies is easier to provide, and internal stability can be maintained through generous budgets. Conversely, falling oil prices can make it more difficult to generate the resources needed to sustain an active foreign policy and can limit a government’s ability to deliver the services and jobs that help to assure political stability.

For further analysis of the implications of the breakeven price data and methodological details see the accompanying discussion paper "Using External Breakeven Prices to Track Vulnerabilities in Oil-Exporting Countries."