The IMF and World Bank Spring meetings kicked off this week in Washington, and are a good opportunity to take the pulse of global investors and policy makers on global risks and opportunities – emphasis likely to be on the former. The institutions own forecasts for growth signal another downgrade in expectations, perhaps catching down to consensus. With a new WB head coming in, how will the organization change. After a strong rally in many risks assets (though mixed story for EM), what are the prospects going forward? What will drive differentiation among EM going forward (growth, use of credit, exposure to commodities)
If you’re going or watching from elsewhere, what are you watching for? What did I miss?
Since the beginning of the year, two major potential downside policy risks have receded, the risks of overtightening of financial conditions due to Fed and other central bank tightening and a further escalation of the tariffs associated with the U.S. China trade war. The combination has led to a strong asset market rally and reversal of the late 2018 sell-off. However macro conditions remain weak as the U.S. economic momentum seems to have slowed, following a slowdown of some of its key trading partners. This is in line with our expectations of a softer 2019, but not a U.S. or global recession. There are some signs of trade stabilization and Chinese local growth stabilization, but few of a meaningful re-acceleration of growth. This contrasts with some growth-influenced assets like equity which are again looking expensive in some developed economies – and may be cheap for a reason in some big emerging markets. I continue to worry the low volatility (amplified by central bank support) may be underpricing risks
At last count, over 48 countries have recognized the role of Acting President Juan Guaido of Venezuela, adding further pressure to the flailing regime of President Nicolas Maduro. U.S. sanctions further amplify Venezuela’s loss of market access, for key energy inputs, energy exports and credit for other goods. This piece surveys some of the economic and financial challenges ahead and how they could be affected by ongoing negotiations and potential impacts for asset markets.
Since the U.S. recognition of Juan Guaido as the interim president of Venezuela and the subsequent imposition of tighter sanctions, there has been much speculation about the prospects of reversing the economic and social devastation of the last decade, Given the significant financing needs, deterioration of physical and social capital, there could be some over-optimism about the speed and extent of the revival of the country’s energy sector and outstanding debt, the two areas that constitute the country’s most meaningful links with global financial markets. These two areas are also those in which domestic choices led to “own goals” that have done much to insulate global markets from Venezuela – migration is the one area that is now a meaningful drain on its neighbors.
Market implications:The impact on global oil supply is likely to be modest for the next year – with Venezuelan output uncertainty amplifying some of the lack of clarity on OPEC+ supply (Iran, Russia and Saudi cuts). Oil output volumes will likely be slow to bounce back given underinvestment. The pathway of long-term investment will depend on the terms offered to foreign investors, and key macroeconomic choices including around the exchange rate. Similarly, addressing the debt issues will also be complicated. Sanctions have frozen recent activity in the few bonds that traded freely, and confirmed our view, that rallies would be short-lived. A lengthy restructuring process lies ahead, with competing claims and counterclaims between different creditors.
I’m aware of how difficult it can be to place a timeline on political change – after all, one of my co-written scenario analyses on Venezuela from 2014 would have been surprised that the regime could hang on for this long, liquidate so many assets and contribute to so much pain.
Many research houses have highlighted the many ‘complications’ that lay ahead, particularly relating to the ongoing political standoff, massive humanitarian/migration needs, the debt burden and the potential energy and economic production. All of these issues are interlinked as efforts to force out the Maduro regime contribute to even greater financial strains in the short-term, while excessively optimistic hopes on energy sector bounce back are likely to complicate eventual negotiations on emergency multilateral support and debt restructurings. Any financial support could be complicated by assumptions by creditors that Venezuela’s oil future earnings should allow it to fund itself. Doing so would require significant capital injections to improve infrastucture, attract back human capital and rebuild key institutions. The good news is that there is strong human capital scattered across the Americas and beyond, and the opposition has had time to come up with a key plan, the challenge is that meeting the interests of all the stakeholders locally and internationally will be complicated by the pain of the recent policy regime, even if the current government and military apparatus could be quick.
The upside scenario:The potential for political change seems to open up the possibility of a long-term positive outlook. The focus on need to stabilize the economy, including some moves on the fiscal side and to slowly get on the pathway to lowering inflation expectations. They suggest a possibility for long-term improvement, if sizeable funds are made available to help rebuild the physical and social infrastructure, if significant capital reductions on the debt are negotiated and if any successor government is able to lure back and deploy Venezuela’s human capital.
More likely it will be a long slog, with contentious legal battles. The remainder of the piece looks at some of these incipient challenges.
Humanitarian needs and economic stabilization programs
There are a few small pools of capital available for purely humanitarian needs, mostly from regional peers, though these would be relatively small compared with Venezuela’s needs. At present the Maduro government has been unwilling to accept these funds and they would likely only be turned over to an opposition government (see OFAC’s direct FAQs)
The IMF and multi-lateral development banks have been watching for the end to the political crisis for many years. The lack of direct links with these organizations makes it harder to assess needs, though the IMF and others have long had “shadow” Venezuela country teams doing their best to estimate financing needs and a stabilization program to be available when requested. IMF estimates have pointed to sizeable needs in the neighborhood of $60 billion plus, not to mention sectoral investment needs. Presumably any long-term deal would likely require debt restructuring or reprofiling to massively push down capital repayment terms and maturities (see below). A short-term deal is likely first, but only after political change, a request for financing and the partial or complete lifting of sanctions, would also be necessary for energy and debt restructuring to make much progress.
Catalysts to watch: Statements on Guaido proxies or PDVSA on JV projects, terms for foreign investments, assessments of quality of wells. OPEC+ quota. OFAC implementation (if Maduro clings to power)
Energy (especially production) likely to lead any economic rebound, but one needs need to distinguish between near-term revival potential (low given investment needs) and long-term potential (good, albeit with high production costs for much of Venezuela’s reserves). Guaido proxies have said a lot of the things that International oil companies (IOCs) want to hear including the plans to reduce restrictions on foreign joint ventures, pay back arrears and the like. However, it remains to be seen what the local political consensus will be on contract terms, tariffs and investment. Capital account restrictions, to allow reinvestment of measures and repatriation of profits into projects may also be necessary.
Unlike countries like Libya or Iran where oil either went offline briefly or there was time to plan for shut-ins, Venezuela’s output decline was long standing and reflected in part a lack of funds for maintenance. This plus the likely drop off in production already on course, questions how quickly it can be revived. The example of Iran’s limited oil output gains may also be instructive. While the sanctions sword of Damocles remained a concern for investors, the relatively unattractive terms offered to foreign companies by Iran’s parliament was a contributing factor. Expect them to look closely at terms offered by Venezuela especially for any new plays in the relatively costly Orinoco Valley.
Still, the most promising parts of the energy sector are likely the joint ventures that PDVSA sharred with certain foreign partners. These accounted for most of the production in the last few years, and temporarily staved off/dampened the decline in output, at least until the Venezuelan government stopped them from repatriating the profits or reinvesting them. Allowing access to these financing (only possible after some sanctions adjustment and assuming a government change. This could still take some time to get back on track.
Over the long-term, political and energy sector policy change suggests Venezuela could be one of the few countries that meaningfully increases oil output. This has led to some analysis that Venezuelan oil output might lead to significant increases in OPEC+ oversupply, putting pressure on its partners. This doesn’t seem to be a near-term risk, for the reasons above, but will likely put pressure on some OPEC+ countries who have benefited from Venezuela’s own goal. Venezuelan projects likely have a mid-range production costs.
Catalysts to watch: statements from Guaido proxies on debt, OFAC implementation, adjustment made to sanctions implementation, details re China and Russia debts. Divergence among creditors some of which will step up efforts to attach early assets.
It may seem premature to be talking about debt restructuring given that most of the traded bonds are frozen and subject to sanctions for U.S. persons as part of the U.S. efforts to cut off the cash flow for the Maduro regime. Sanctions were the last straw for a government that was near default for years, scraping together sufficient funds to repay creditors by liquidating or leveraging any state assets, thus prioritizing repayments over the needs of local business and population. This liquidation of assets (FX and gold reserves, PetroCaribe debts) and other creative financing structures has left the Venezuelan government with very limited savings to invest or repay its creditors. It also contributed to the massive contraction in imports that helped Venezuela partly close its external deficit for a time. This was painful and unsustainable, especially as planned investment and revival will likely need meaningful imports of material, and reviving consumption will require financing for other imports. As with most energy production increases, these import needs will likely outpace the export increases, thus limiting improvements in the external financing outlook (current account).
This suggests that Venezuelan debt is not sustainable, especially when the bilateral debt to China and Russia is added to the mix. Of course calculating debt sustainability is complicated by lack of clarity on the volume and terms of the loans from these bilateral lenders. Nonetheless all of these lenders will seek to be made whole, something that does not seem consistent with economic stability and revival.
In short, a tough restructuring is probably ahead given the likely cash flow and financing needs. needs. Venezuela sharply and painfully reduced its imports some years ago to limit the new debt financing requirements. Repeating this is not consistent with economic revival.
Recent Russian reports provide more color on Russian official sector’s move out of the the USD in Q2 of last year. The big focus of the CBR reserves composition report (see thread here) was the move into CNY assets, making Russia is now one of the largest holders of offshore CNY reserve assets. Despite the speeding up of the reserves diversification (most of which continues to be into EUR). the USD continues to dominate in cross-border trade and financial transactions. The move, already visible in the US data last summer, raised questions about the impact on broader USD assets at a time of fiscal and monetary pressure on USTs. The risks of Russia purchases look overstated, given the relatively small size of its holdings, continued purchases by other countries (including other oil producers) and ability of the Federal Reserve to provide liquidity if needed. Bigger long-term concerns around USTs should focus around the fiscal position, which is going to increase the amount of issuance in coming years – likely increasing the US cost of financings. Local and foreign investors are likely to bear this cost unless there are any signs the U.S. willingness to pay is shifting.
Russia’s move to sell USD was political, following the April 2018 sanctions on Russia and the local press estimated realized losses of $1.5b – admittedly small compared to Russia’s stock of assets and not necessarily something of concern to the government.
The move sped up the shift away from the USD in Russia’s FX holdings. The increase brings CNY holdings up to $62 billion of Russia’s $430b+ portfolio, meaning Russia now accounts for about 1/3 of the $192 billion in global reported CNY reserve holdings (IMF COFER) and just about all of the $40 billion increase in global reserve holdings of CNY in Q2. This is but one of the increasing links between Russia and China, which I’ve previously cited as a source of resilience for Russia. Of course, CNY-denominated bonds are not very liquid, and bilateral trade in CNY is still quite low between the countries suggesting limited benefit for reserve assets, particularly given the likely interest rate moves.
What does this mean for broader USD holdings?
Figure 1: Holdings of Long-Term US Treasurys (USD million)
Compared to turnover of the USTs even the 100b is not something that big… but would be more important if other countries followed suit.
That doesn’t seem to be happening. Chinese holdings are pretty stable with ups and downs due to currency management and GCC countries (KSA but also Kuwait and Qatar) seem to have been parking funds in USTs at the end of last year- at least for now. The increase in Saudi holdings of USTs (net $40 billion) in Q3 partly offsets the sharp decline in Russian holdings, likely reflecting the increase in energy revenues. The increase in KSA holdings far outpaces its reserves growth suggesting that the Saudis may have been parking the funds in UST after raising the funds in some of the bond issuance.
The increase in cash flow from Saudi Arabia energy sales inQ2 and Q3 last year (and maybe the bond issuance) seems to have gone into USTs and may have helped them finance the outflows that resulted when locals and foreigners continued to flee after the Kashoggi murder. Given the fiscal dynamics there and fall in oil prices this increase was likely temporary. Still, there is reason to expect that any shortage of buyers and associated interest in rates, would likely bring in more pensions, insurers and others looking to match their asset and liability portfolios.
Of foreign holders, China remains key – and the PBoC seems unlikely to cut holdings for political reasons. As I’ve written in the past, Chinese Treasury holdings reflect domestic economic choices rather than geo-political ones suggesting that local capital outflows and FX management will drive its foreign portfolio. Attempts to reduce treasury holdings would put appreciation pressure on the renminbi, undermine global and Chinese financial stability and likely reduce the value of their existing holdings.
That’s not to say that de-dollarization is not something to watch, but it looks to be a slow moving machine. Other critical policies to watch remain efforts by the European authorities to skirt U.S. sanctions, which are so far having only limited rhetorical impact. More important is the fiscal outlook of the U.S. which will likely put pressure on a range of assets.
As 2018 winds to an end, and 2019 lookaheads are completed, its time to share a few books that stuck with me this year from the 50 non-fiction books I read or listened to this year. Given my IPE teaching this fall, and ongoing macro risk work for clients, my non-fiction reading was dominated by corruption, country risk cases as well as a lot on AI, future of work and big data. Surprisingly, I read a lot of fiscal policy, perhaps fitting in the year when the biggest expansionary policy in peacetime came into effect and in which the costs of unwinding the big monetary stimulus experiment began.
What were your favorites, what did I miss and what’s on your reading list?
2019 set to be a tougher year…
Growth momentum has weakened in the second half of 2018, particularly in European and Asian exporters, who are responding to the end of above potential growth of the last few years, which has moderated final demand growth. Tariffs, restrictions and tighter financing costs have reinforced this trend, making final harder to forecast and encouraging caution on new investment decisions, Meanwhile Fed tightening, exit from quantitative tightening and boost in available US Treasurys, have begun to increase debt service costs across a range of sectors and geographies.
Slowing final demand growth globally is not a surprise, and has been a part of our themes for the last year, but the trade disputes and restrictions have reinforced some caution from buyers and supply chains. The drivers of this slowing of growth include a) the disconnect between policy stance in the U.S,. and other major economies across fiscal and monetary policy b) the lack of structural measures to boost final demand growth, c) removal of the “sugar rush” of monetary policy support as quantitative tightening takes hold. The U.S. and Chinese central banks have been particularly focused on continuing with business as usual, with overall policy stances only partly supportive. In both cases, a relative disconnect between fiscal and monetary policy complicates the messaging, and exacerbates some of the FX pressure.
I’m off to the annual meetings of the World Bank and IMF this week, a good chance to take the pulse on global market consensus and the worries of policy makers. Global trade risks and their impact on an already decelerating global economy are likely to top the worry list – with the impact of tariffs, policy uncertainty on value chains in focus along with questions of policy and macro divergence, all of which have left many less optimistic than in the spring. Given the recent escalation of U.S. – China trade tensions, and signs of slackening in global export growth, the focus is likely to be on the downside risks to global growth, the divergence between U.S. economic activity and that of most of rest of the world.
Last night’s just-before-deadline announcement that Canada and U.S. had reached a deal was met with a sigh of relief in many capitals but especially Ottawa. Reaching a deal on the two linked bilateral deals was definitely better than the alternative of no deal and related uncertainty for investors and certainty of a tough congressional approval process for a bilateral U.S. Mexico deal. It reduces the risk of a negative market outcome for one of the more integrated blocks, a fact that was largely priced in, but it is hard to see the deal as more than defensive.
In short, it seems to be a deal narrower in scope, one that was defensive (holding back on U.S. protectionism rather than creating space for new areas of growth), raising the question about the deployment of political capital on a relatively narrow set of policy changes. Next up – legislative approval in the three countries (tricky in all, mostly in the U.S.) and dealing with the bigger issue/challenge – China. The outcomes for both congressional passage and a deal with China may both be harder than markets expect.
Lately with trade disputes ratcheting up, I’ve had a lot of questions about the impact of trade uncertainty on market actors and businesses, including whether markets are overpricing risks given the strength of global growth. The jury’s still out, particularly as we’ve been in an as good as it gets moment, but the results don’t look great looking ahead. Trade policy uncertainty by making supply chain costs harder to predict may reinforce what was likely to be a cyclical slowdown in 2019/2020.
I’ve been concerned for some time that trade uncertainty would make it harder for businesses and indeed households who likely bear the brunt of cost volatility to plan. FX would likely be a major vector of transmission , but uncertainty about supply chain costs, might exacerbate the impact of the tightening of global liquidity implied by the exit of central banks from super-accommodative policies.
I’m not suggesting that trade barriers are the only or even primary driver of decisions, but uncertainty might cause some businesses to hold off on making investments that were already iffy. It might also increase a trend towards deepening of domestic supply chains, which would shift some of the winners and losers in the global economy. Finally it might add to the trend of more consumption rather than investment driven global growth. This seemed a particular risk for countries such as Canada, that are very exposed to U.S. markets, and where the central bank has been concerned that trade uncertainty might be adding to already sluggish business investment.
Perhaps its no surprise that one of the more interesting recent pieces on the role of trade uncertainty comes from a Canadian institution Meredith Crowley and Dan Ciuriak make an important addition in Weaponizing Uncertainty which does a nice job summarizing recent episodes of uncertainty, vectors of transmission and highlighting ways in which uncertainty on its own might pose a new non-tariff barrier.
One of the biggest questions of the last few years has been when/if trade policy uncertainty might impact global and U.S. growth (see my podcast with hidden forces for a detailed discussion). We may be reaching that time, more so outside the U.S. the U.S. than inside it due to regulatory choices, and fiscal trends, however, U.S. consumers and businesses will be on the receving end of blowback also. Remember, than sizeable earnings of the S&P 500 are from foreign profits.
US policy trends
Recent framing of the U.S. numbers suggest that fiscal stimulus is prompting more of an impact on growth and providing a cushion for administration officials, but doing so is supporting imports, making it even harder for the administration to meet its self-imposed trade deficit goals. Moreover the impact on the USD raises some real questions about dollar funding, especially as the US government has increased its issuance in the market, putting pressure on competitors, exactly as the central bank bid is easing or reversing. This suggests that assessing fundamentals will be important, with weaker fundamental countries and companies providing support.
Chinese response: Could it be easing?
As I’ve noted in past pieces, Chinese policy response is critical to the global outlook, the performance of assets and the transmission. the Chinese policy response shifted form a moderately supportive one (monetary, credit) to a more neutral and slightly tighter one over the last year, amplifying the impact of a relatively tighter fiscal stance. The PBoC balance sheet is now expanding at a slower pace (as local exposures offset for lower foreign currency holdings). The output data from Q2 so far show a cyclical slowdown on the investment side, though not on the retail side. the natural reaction of the Chinese authorities would likely to be to take a slightly easier, stance particularly if they were worried about tightening from the U.S. and supply chain disruptions. This would have the side “benefit” of allowing the CNY to reverse recent appreciation against the basket. The question will come if the CNY starts weakening beyond the basket.
Note that I think market and policy chatter about the possibility that the Chinese might sell their holdings as relatively ridiculous. While China has been looking for opportunities to diversify the portfolio and aims at shifting the currency risk to non-Chinese actors, a political decision to sell their treasurys would have several detrimental impacts
Are we headed for another crisis?
Several recent reports (UNCTAD, World Bank) put emphasis on policy uncertainty in reducing long-term investments. I’m not sure trade protectionism can take the full blame here, though it may complicate things.
Domestic Policy uncertainty around fiscal policy, domestic prices and utility tariffs or infrastructure caps investment in Brazil (though recent IIF analysis on FDI suggests that risk may be overstated) as does expropriation risk in Russia, Saudi Arabia etc. these can add up. in general we have seen much more portfolio debt flows than equity and more short term than greenfield or even brownfield investment. This reflects questions on the business environment at home as well as demand at home and abroad.
I was asked a few weeks ago about worries that trade protectionism would lead to a 2008 like recession. That’s always possible, but I find it hard to see the vector for such a sharp contraction in credit and inability to access global demand. Major tariffs would likely be absorbed through Fx swings and some short Fx positions in usd would be stopped out but I don’t see as much shadow banking risk or collapse in counterparty risk. That’s not to see Macro outlook would be great under a tit for tat trade environment between us and China but the outcome might be more gradual. Key to watch is the policy moves of the Chinese government, especially given the sizeable increase in debt and continued quality of growth issues.
I think there is likely to be a modest drag to business investment outside the United States particularly in the Americas and Europe and some higher cost Asian producers. This is because the tariffs reinforce some other concerns about final demand- and on the margins tax measures have made it somewhat cheaper to locate operations (finance, services) in the us.
Then what tariffs matter a lot. Steel and aluminum tariffs will add to inflation and have a modest growth drag, but pretty limited and even nafta withdrawal will only somewhat disruptive in the near term with greater impacts in the medium term. I would be more concerned about the impact of sizeable tariffs on Chinese trade which would have greater impact on global supply chains including a drag of up to a percentage point on us growth and more on some of its trading partners. This is a major reason why it may not get implemented in full. Along the way, it will be harder to plan and financial and other investors may remain more wary. Coupled with concerns about current valuations, justifiying current P/Es looks difficult.
More to come.
Last week, OPEC+ ministers managed to come to a consensus after days of contentious discussions in Vienna, achieving the goal of formally keeping the OPEC+ alliance together, but failing to solve some of the thorny issues between key members including Saudi Arabia and Iran. The final agreement, which commits the group to reversing recent overcompliance to boost production, remains formally agnostic on who will contribute to that production increase. This post looks at the factors that will shape upcoming fundamental outlook and assesses the macro impact for some key producers.
This suggests the alliance has moved into a transition phase of exit and shift to a different and more contested data dependent mode. The time-buying (or can-kicking) deal allows for more time to assess several key supply and demand variables described below including the impact of sanctions, the politically driven pressures and the resilience of global consumers.
In the near-term, the results support higher prices, especially as the net addition of fuel will be modest, and the result of individual decisions not the collective. Meanwhile the looming implementation of Iran sanctions poses a risk. Additions from the countries which can add will likely to offset by continued Iranian export declines as businesses trim their imports ahead of key November sanctions dates. The uncertainty around supply and risk of unilateral action to make up the gap. increases the likelihood of volatility and production.
Overall the result mapped with my expectations of gradualism, a moderate increase now, with ongoing reassessment and eventual gains through the year. As noted in our coverage of the Iran deal exit, OPEC members were likely to add supplies slower and more modestly than some market actors expected, while bargaining and price discounting from the Iranians would complicate assessment of production. The political pressures and uncertainty on production outlook in several key countries (including Venezuela, Iran, Libya, Nigeria), make it hard to imagine a different outcome, but divides will build over time, as further outages build in countries like Iran and Venezuela and only a few countries can produce more in compensation.
Focus on the big alliance, not only the smaller ones within OPEC: The result highlights the importance for Saudi Arabia (and GCC allies) as well as Russia of retaining the alliance struck in 2016 on managing oil output. Remaining vague on the details of how the production will be re-allocated from Venezuela to the countries with spare capacity, avoids a political decision that will eventually need to be addressed, since its hard to see any meaningful increases from that country. In fact, output is likely to fall further due to strikes, job cuts and equipment seizures.
Gradualism allows for more information gathering: By later in the fall, there should be more clarity on the following relevant fundamental issues that make it currently difficult to plan.
Exit from easing needs new forward guidance. 2018 was always going to be the year when the alliance shifted to a new phase. Like global central banks moving to quantitative tightening, the alliance (which was in a formal tightening phase), will employ new forward guidance for easing. The Joint monitoring committee (and a range of private monitoring bodies, are likely to take on a bigger role with focus moving beyond 5 year inventories as their main fundamental metric. It remains unclear what the new metrics, and forward guidance will look like. Saudi Arabian officials have already gone on the record to highlight the need for well over 1 million barrels a day in increase by the end of the year. Doing so, while absorbing Iranian output is likely to be difficult.
What might the impacts be on oil producers?
The decision brings increased breathing space to most oil producers, especially Saudi Arabia, most of the rest of the GCC and Russia, which account for the bulk of global spare capacity. While prices might soften from their recent levels, the increase in output, even if moderate should keep oil revenues elevated compared to 2017 levels and increase the energy contribution to growth. This should modestly reduce oil fiscal breakevens, though we assume that most countries will take the opportunity to spend a little more given that non-oil growth has been sluggish especially in MENA and SSA.
Our analysis suggests more GCC countries will use this space to become a little more expansive on the fiscal side, offsetting for what continues to be sluggish private sector growth, credit and sentiment. We have already seen stimulus rolled out in Abu Dhabi and Qatar, and spending outpace plans in Saudi Arabia, though some of these look temporary. We assume that fiscal breakeven price in Saudi Arabia may fall slightly to the low/mid 80s from the current $89/barrel, suggesting slightly less draw on debt. This implies that there will be more final demand rather than petrodollar savings. Countries in a position to save more include UAE (Abu Dhabi), Kuwait, Qatar, Russia, Kazakhstan, and possibly Nigeria. The chart below highlights likely shift in the current account surplus (flow of savings net of imports of goods and capital).
Other countries including Oman, Saudi Arabia, Iraq will likely tend to borrow less or draw down fewer reserves. Saudi Arabia likely will have more pump priming space to support the private sector.
We see a modest increase in Russian output, but limited impact on growth. In Russia, the flexibility of the exchange rate remains a key adjustment tool and increase in output is an offset to the financial cost of sanctions.
Those most vulnerable remain Venezuela, where local mismanagement, asset seizures and the exacerbating impact of sanctions suggest significant further outages. While politically OPEC could not formally reallocate its target, its hard to see any reversal of outages, especially as recent legal cases and strikes undermine its capacity further.
Iran, too will start to feel the pinch from the drop in oil prices, with the full impact dependent on sanctions implementation. For more on the scenarios, please see here. Decisions on adjusting to Iranian outages are more likely to be bilateral (between buyers and sellers) than within the alliance, but its hard to see if able to sell its current targets.
Rachel's musings on macroeconomic issues, policy and more.