The trade war unleashed by US President Donald Trump promises to make a dent in Angola, and not through the announcement of the 32% reciprocal tariff, which has since been suspended for 90 days. Nor by creating doubts about the consistency of the bilateral relationship that was achieved during Joe Biden’s consulate, materialized in the decision to make Luanda the stage for the US-Africa business summit to be held in June.
A side effect of this trade war is the predictable slowdown in economic activity, a scenario that has repercussions for the price of oil. With less demand, the price of this raw material is on a downward trajectory and this will affect Angola’s public revenue, both through sales and tax collection.
Oil is worth 55% of Angola’s tax revenue and two thirds of this, 66.4%, is used to service the debt. This means that the lower the revenue, the greater the pressure on the treasury.
In 2024, Angola obtained revenue of 28.1 billion euros, resulting from the export of 393.4 million barrels of crude oil, which were sold at an average price of 79.7 dollars. China led the way in terms of overseas crude oil sales, with 51.91%, followed by India with 10.02%, Spain with 6.27% and Indonesia with 4.81%. And even China’s oil needs are on a downward trend due to the increase in sales of electric vehicles in that country.
Less investment in exploration
The current situation validates the warnings issued by the IMF (International Monetary Fund) in February this year. In its latest Article IV analysis of Angola, the IMF stressed that the high level of external debt servicing is a constraint on development spending and that dependence on oil continues to be an obstacle to sustainable growth.
“The liquidity risk could intensify if financing conditions deteriorate, further reducing social spending and putting pressure on the exchange rate,” warned the IMF.
The price of a barrel stood at 64 dollars this Monday, recovering from 60 dollars last week. Even so, it’s below the figure of 70 dollars that was considered by the government in the General State Budget for the current year. Thus, although Sonangol assures that it will maintain production of 1.98 million barrels of oil per day, the reality is that the financial inflow is likely to be lower. The current budget envisages revenue of around 35 billion dollars.
Angola left OPEC (Organization of Petroleum Exporting Countries) in January of this year, so that it could increase production without being limited by the quotas imposed by this cartel, which the government disagreed with because they limited the growth of oil production.
In the short term, it will be difficult for oil to recover, given the foreseeable slowdown in the world economy. Although the US President has announced a 90-day pause in tariffs, the climate of volatility will continue to dominate the markets, pushing down the price of this raw material.
Another impact of this reduction in demand will tend to be a slowdown in exploration and prospecting activity. In other words, with the market shrinking, it is possible that some investments will be put on hold, for example, the prospecting agreements signed in February between the National Oil and Biofuels Agency and TotalEnergies and ExxonMobil, to study and evaluate the potential of the offshore Free Areas of Blocks 17/06 and 32/21.
Angola’s National Oil, Gas and Biofuels Agency continues to award new concessions, and estimates that 10 more will be awarded by the end of the year, in addition to the 40 already granted, but the next step, investment, will be much more difficult to achieve against a backdrop of market stagnation.
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