The Countries Most at Risk from Declining Oil Prices

The oil markets woke up at the end of the summer of 2014 realizing that there was not as much demand out there as they thought. Suddenly, the world is flush with supplies, and there aren't enough buyers out there to gobble it all up.

That has Brent prices at their lowest levels in over two years.

The International Energy Agency said that weakening demand for oil worldwide is "nothing short of remarkable." What is even more remarkable is the blunt language used by the IEA, usually a buttoned-up and bureaucratic bunch.

But for the third month in a row the IEA was forced to slash its demand forecast for 2014. The agency now expects oil demand to grow by just 900,000 barrels per day (bpd) between 2013 and 2014, a downward revision of 65,000 bpd from a month earlier. It is also 300,000 bpd less than what the IEA expected for the year in its July report.

For 2015, growth in oil demand is expected to only reach 1.2 million bpd, or 165,000 bpd less than the agency thought one month ago. The agency pins the slowdown on weak growth in Europe and China.

Saudi Oil Minister Ali al-Naimi responded to reporters' questions about what OPEC would do in response. Prices "always fluctuate and this is normal," he said. He dismissed the notion that OPEC would resort to drastic measures to prop up prices.

"We are confident that the current price drop does not call for an emergency meeting.... The price drop was not big and was expected.... I expect it to rebound again," Kuwait oil minister Ali Saleh Al-Omair said.

Nevertheless, Saudi Arabia is plenty worried about a glut of supplies. It cut production by between 330,000 and 400,000 bpd in the month of August.

And OPEC and other major oil suppliers are probably more worried than they are letting on. And if they aren't, they should be. That is because many of them need high oil prices to sustain fiscal expenditures.

Below are a few countries to keep an eye on during this period of soft oil prices. This is an issue that will simmer and only grow worse with time, but investors need to maintain their attention on this list of oil suppliers because while the problems could be acute, they are often slow to emerge.

•    Iran. The Iranian regime has seen its oil revenues plummet as result of western sanctions. In lost around $26 billion in 2012 due to low levels of exports. As a result its "breakeven" price - the price at which it can sell oil and balance its budget - sits at around $126 per barrel for Brent crude, well above the $97 and $98 per barrel that oil is selling for as of September 11, 2014. Iran will be taking in a lot less revenue than it was earlier this year as crude prices drop. This should have some complicated ramifications for the ongoing negotiations with the P5+1 nations over its nuclear program. On the one hand, it could apply additional pressure to Ayatollah Khamenei and President Hassan Rouhani to make a deal. That could lift the sanctions and allow Iran to significantly boost oil exports and bring in more revenues. On the other hand, if the two sides are unable to make a deal, Iran, with its back against the wall, could resort to more sabre rattling in order to increase tension and thereby boost oil prices. Time will tell, but the longer oil prices remain soft, the more interesting this situation will get.

•    Russia. Soft oil prices could not have come at a worse time for the Russian economy, already reeling from capital flight, sanctions, and the onset of a full blown recession. After several months of economic pain, Russia finally agreed to help implement a ceasefire between pro-Russian rebels and Kiev. It seems that despite Russian President Vladimir Putin's impressive resolve in the face of international opprobrium, even he began to see the rising toll of continuing the conflict. Russia is so overwhelmingly dependent on oil and natural gas to fuel its economy that an extended period of sub-$100 per barrel Brent prices spells trouble for the Russian economy. For every $1 decline in the price of a barrel of oil, Russia loses out on $1.4 billion in annual revenue. To be sure, Russia is in a bit better position than Iran, fiscally speaking, with a breakeven price for somewhere between $110 and $117 per barrel. But, in the short-term, a period of low oil prices will send the economy into recession and even endanger high cost projects, such as the Arctic. Over the long-term, the EU and the U.S. are considering sanctions hat could prevent Russia from growing its oil sector. You can bet that Putin is biting his nails as Brent prices continue to fall.

•    Saudi Arabia. This one is intriguing. Although Oil Minister Ali al-Naimi downplayed the recent decline in oil prices, Saudi Arabia is in a conundrum. As one of the world's largest oil producers and the only one with significant spare capacity, Saudi Arabia takes its role seriously as a sort of central bank of oil supplies - it's the only country that proactively increases and decreases production to balance supply and demand. It prefers high prices, but above all, it likes stability. It has a breakeven price of around $92 to $97 per barrel, meaning oil prices are about at the lower end of what it can handle for a long period of time. In fact, its breakeven price has risen in recent years as a result of higher spending in order to calm unrest resulting from the Arab Spring. So, the oil kingdom could cut back production to lift prices, but then it would be taking in less revenue because it would be selling fewer barrels. Meanwhile, U.S. oil production is adding global supplies and cutting into Saudi Arabia's market share. Also, other OPEC members are ramping up production forcing Saudi Arabia to pullback. This is a trickier equation for Saudi Arabia than many energy analysts appreciate. Saudi Arabia's ability to control oil markets is waning, and if prices do not bounce back, as Naimi predicts, Saudi Arabia will face some serious economic and budgetary challenges.

•    Iraq. Where to start? ISIS has torn the country apart. It has not resulted in the wholesale destruction of Iraq's oil sector, but future investment is highly questionable. The fractured country is about to experience an American air strike campaign that could last for several years. After Iraq was showcased by the IEA as one of the key countries that would meet rising oil demand over the next 25 years, Iraq's ability to boost production is dubious, to say the least. But given the existential problems facing the country, increasing production is not of immediate concern. Low oil prices are probably the least of Iraq's problems, but the country still has a breakeven price of around $106 to $116 per barrel. Even still, for a country that is already at war, and seemingly has been for ages, things probably can't get any worse.

•    Venezuela. Perhaps the oil producer in most trouble, and oddly enough, one of the least in the news, is Venezuela. Venezuela's bond prices hit a six-month low on September 8, as investors feared the South American OPEC member was teetering on the brink of default. Venezuela has $4.5 billion in bond maturities later this year, but it is quickly running out of cash. Its bond yields, more than 13 percentage points higher than U.S. bonds, is even higher than Ukraine and Argentina, which went into selective default at the end of July. The violent protests that rocked the country in February have subsided, but they could roar back in the coming months if the problems do not recede. The Venezuelan government tried to reassure the markets, but its problems could be about to get worse, not better, now that oil prices are dropping. The country has a breakeven price between $117 and $121 per barrel. If the government defaults, oil exports could be targeted by creditors, according to the Wall Street Journal. To top it off, the turmoil with bond markets could further slash Venezuela's oil production, which has already been in decline for a number of years. There is a decent chance that this whole thing blows up in the coming months.

It is not all doom and gloom for major oil producers, as crude has the habit of fluctuating wildly. Just as prices dropped because of weak demand and larger supplies, the markets could quickly tighten once again. In fact, over the long-term, demand will only continue to rise. Oil producers just need to find a way to ride out the near-term. But, that is easier said than done, and if oil prices remain persistently low, some of these countries may not be able to weather the storm.