The Scenario:

Oil prices declined by 39.0% during the past five months, driven by the strong dollar, OPEC-member politics, fracking technology, and low interest rates. Media and corporate attention has been focused on struggling oil exporters like Russia, Venezuela, and Iran. However, a low energy price environment creates more winners than losers, creating opportunities that should be incorporated into 2015 plans.

Who will win?

In contrast to OPEC and other oil exporters, emerging market oil importers will gain from savings earmarked for energy imports that are instead spent in the local economy. Increased spending creates opportunities for multinational corporations (MNCs) to boost sales, particularly to consumers and governments.

FSG ranked the top emerging market energy importers by potential GDP increases as a result of lower oil prices. Lower oil prices means the value of oil imports will decrease, thereby decreasing total imports. As total imports decrease, GDP increases. All other GDP components are held constant in this model. Countries selected for this model are the most frequently tracked by our MNC client base in their FrontierView platforms:

Although this model does not capture the import substitution and exchange rate impacts, it demonstrates the upside potential the multinationals may experience in an environment of slowing global economic growth.

Can companies gain, too?

Prices eventually will rise again. However, it is FSG’s view that supply-side fundamentals will cause oil prices to stabilize at lower levels than in most of the previous decade. MNCs should strongly consider what a lower oil price environment will mean for 2015 plans. Actions companies should take include:

• Stress-test your market prioritization assumptions. In which markets could government and consumer spending increase as a result of lower energy prices?
• Create upside contingency plans. Move ahead of competitors to benefit from increased revenue potential or cost savings as a result of more favorable transportation costs.
• Increase short-term marketing budgets to capture share in markets that may experience increases in demand.

FSG Client Resources

• Log into FSG’s Data Explorer to schedule monthly alerts to track country forecast revisions
• Read Monthly Market Monitors on FSG’s client portal to follow developments in energy prices and what they mean for the business environment
• Engage with FSG to develop a contingency plan to capture upside opportunities in markets where demand may increase