Fitch warned about a risk due to closure of Strait of Hormuz

Fitch has indicated that it has maintained Iraq’s credit rating at B-, a degree of risk and a stable outlook. Fitch issued a statement and warned about the backlashes of the outbreak of antagonistic actions leading to the closure of the Strait of Hormuz. It is due to Iraq lacks other routes of export of oil in the south. Fitch also estimated that the closure of the strait for a month could result in Iraq losing 6.5 billion U.S dollars in oil revenues, or at least 3% of GDP. The tension in the region increased on the evening of July 19. It was the time when Iran announced the detention of a British tanker in the strait. The Iranian action took place hours after a court in Gibraltar issued an extension of the detention of an Iranian oil tanker for 30 days.

Fitch warned about a risk due to closure of Strait of Hormuz

The U.S Energy Information Administration and the International Energy Agency data shows 21% of global crude supplies or 21 million barrels/day pass through the Strait of Hormuz. The statement also said, “The tightening of US sanctions against Iran is difficult for Iraq because it depends on Iranian electricity and gas imports as inputs to generate electricity”. The statement further indicated that the high export price of Iraqi oil 33% to budget surplus about 8% of GDP in 2018, after 5-years of the deficit. It is noteworthy that Iraq is OPEC’s 2nd largest crude producer and has an average production of 4.5 million barrels/day.

 Iraqi government’s debt has fallen to less than 50% of GDP in 2018 compared with 66% of GDP in 2016. The foreign currency reserves excluding gold were 61 billion U.S dollars at the end of 2018 compared with 46 billion U.S dollars in 2017. The Iraqi government’s external debt service ranges from 2.5 billion U.S dollars to 2.8 billion U.S dollars annually in the period 2019-2021. Fitch also indicated that lower oil prices were triggering a renewed worsening in fiscal and balance of payments conditions in Iraq between 2019 and 2021. It is important that Iraq is an OPEC member and relies on oil revenues to finance up to 95% of state expenditure.

Share This Post

Related Articles

· Designed by RF