As the incoming president of the United States, the world’s largest oil producer, Donald Trump’s campaign promise to push for lower oil prices has sparked both hope and concern across global markets. While his ability to influence oil prices is limited—given the U.S.’s lack of control over OPEC+ and the absence of a state-run oil company—his rhetoric has nonetheless caused ripples. A complex global landscape, including an uncertain economic outlook in major oil-consuming nations like China, has further added to the unpredictability of this pledge.
For emerging markets, lower oil prices present a mixed bag of opportunities and challenges.
Winners and Losers in Emerging Markets
A significant drop in oil prices—potentially to around $40 per barrel—would have varied impacts across countries.
Oil-Producing Nations:
Major oil producers, including Saudi Arabia, would feel the strain of lower prices. While Saudi Arabia has the cushion of sovereign wealth funds and diversified economic initiatives such as the $500 billion NEOM megacity project, a prolonged price drop could force budget cutbacks. Poorer oil-dependent countries, like Angola, Ecuador, and Nigeria, face a grimmer outlook. These nations rely heavily on oil revenues, often needing prices near $100 per barrel to balance their budgets.
“They don’t have any savings to fall back on,” notes David Rees, senior emerging markets economist at Schroders. Mounting debt and limited access to affordable borrowing could worsen fiscal vulnerabilities, overshadowing even positive reforms such as Nigeria’s fuel subsidy and foreign exchange adjustments.
Oil-Importing Nations:
Conversely, oil-importing countries stand to benefit from reduced costs. Major importers like China and India could see significant savings, with China currently spending nearly $300 billion annually on oil imports. Smaller importers, including Kenya, Pakistan, and Turkey, could enjoy reduced inflation and lower energy costs. Emerging economies that subsidize fossil fuels, such as Venezuela and Iran, might also find relief, as falling oil prices could lessen their fiscal burden.
However, the potential benefits come with caveats. “Lower oil prices alone are no guarantee of economic relief,” warns Alejo Czerwonko, Chief Investment Officer for Emerging Markets Americas at UBS.
Broader Economic Implications
While reduced oil prices could ease inflationary pressures and bolster purchasing power in importing nations, other global risks could offset these gains. A potential trade war, spurred by Trump’s tariff threats, could stymie economic growth and cause a global demand shock. Export-reliant economies, like South Africa, which depend on commodity markets, could face serious repercussions if a broader downturn occurs.
Emerging markets that rely on financial support from oil-rich nations in the Gulf, such as Egypt, Pakistan, and Kenya, could also be vulnerable. A significant revenue shortfall among Gulf states might result in reduced foreign aid and investment, further straining these debt-laden importers.
The Climate Conundrum
There’s also a longer-term concern: the impact of sustained low oil prices on the transition to renewable energy. Cheap oil could delay investments in cleaner alternatives, exacerbating climate challenges for vulnerable emerging markets already grappling with rising environmental costs.
The Bottom Line
The implications of Trump’s low oil price promise are far-reaching, with winners and losers across the emerging markets spectrum. While importers may gain short-term relief, the broader economic context—ranging from trade wars to climate concerns—complicates the picture. For policymakers and investors alike, the reasons behind falling oil prices will be as critical as the price drops themselves in shaping strategies for the future.