Oil-producing Latin America is also feeling the shock of low crude prices

An oil price war erupted between Saudi Arabia and Russia, causing prices for the commodity to plunge 25 percent [March 9] -- their steepest drop since the Gulf War in 1991. The start of the oil price war coincided with the first global fall in demand since 2009, according to the International Energy Agency. Which oil-producing nations in Latin America and the Caribbean are most at risk from the situation, and what will be the consequences of such low oil prices on their economic and fiscal stability? How should governments in the region respond? What’s behind the price war, and how will the geopolitical dynamics play out this year as they relate to Latin America?

Cleveland Jones, professor and researcher at the National Institute of Oil and Gas at the State University of Rio de Janeiro: The plunge in oil prices after the price war between Saudi Arabia and Russia exposed some uncomfortable realities regarding world oil supply. When prices were at levels that allowed profitable production from most major producers, few dared to discuss how production could be rendered at risk by low oil prices. Now, it is clear that prices could fall below the national budget breakeven levels of many countries, and also below the economic costs of production in some regions. Production from some countries is at risk, while that of others will stand out as most resilient to low prices. Production from Russia and U.S. shale plays will also be hurt, but in Latin America, lost revenues will be severely felt in Venezuela, although production will continue regardless, given the need for foreign exchange. Mexico, Colombia and other Latin American countries risk uneconomical production, despite official claims. They are paying the price for not implementing reasonable energy legislation and reforms. However, underlying geological and technical favorability of production in Brazil’s deepwater and pre-salt plays, and recent reforms that improved the country’s attractiveness, place Brazil in the forefront of world oil plays, both in production potential and resiliency to oil prices. Prolific wells and production costs as low as $5.60 per barrel in the pre-salt ($12.50 per barrel in deepwater plays) ensure that in any price scenario, these regions will remain economically viable and may even assume much greater relevance in the world scenario. Brazil stands to gain while others lose.