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Alliant releases annual report on political risks in oil and gas frontier markets


Alliant Emerging Markets, a unit of Alliant Insurance Services Inc., has released its ranking of political risks in important oil and gas frontier markets, the Frontier Energy Risk Index.

The yearly risk climate rankings are intended to give oil and gas companies an idea of changes in political risk levels in 14 different emerging economies with potential for producing oil and gas, the Newport Beach, California-based broker said in a statement Tuesday.

The rankings are based on macroeconomic and political risk loss data, according to the statement.

Ecuador had the largest positive gain (22%) from 2013 because of its improving macroeconomic forecast. Algeria and Libya are also considered less risky because of a “marginal reduction in war and civil war risk” in those countries, according to the rankings.

Equatorial Guinea, Republic of the Congo, Egypt, Gabon, Angola and Kazakhstan all had positive gains from 2013. Yemen remained the same.

Egypt's rating increased by 5%, but investors and companies should still be cautious, the reports says.

“Egypt has emerged from a long run of political instability, and a recent regime change to show some positive movement in our risk models,” Michel Léonard, chief economist with Alliant Emerging Markets, said in the statement. “However, we remain guarded about its long-term prospects and warn investors not to confuse gradual improvements with medium or long-term structural stability.”

Indonesia had the biggest year-to-year downgrade with a 62% ratings drop.

“The downgrade is largely due to the newly imposed restrictions on foreign investments, first in the mining sector, and now in the oil & gas sector,” Mr. Léonard said. “We expect this trend to continue regardless of the upcoming presidential elections.”

Military tensions in the South China Sea mean that Vietnam is risky for oil and gas companies and investors, according to the rankings.

“Chinese authorities' decision to move an oil rig into Vietnam's exclusive economic zone is the most notable of many recent confrontations between China and other countries in the South China Sea,” Mr. Léonard said. “In the long term, we expect China's actions to lead not to territorial expansion, but to China being granted rights to production in the waters it is claiming. Oil & gas companies should be aware of the changes this will bring to any current or future licensing agreements signed in the South China Sea, especially with Vietnam.”

Thailand and Malaysia were also downgraded from their 2013 ratings.