The slump in oil prices is frightening stock traders, but the impact on geopolitical stability may prove to be more alarming this year.
Low commodity prices could exacerbate tensions and conflict in the Middle East, increase public protest in Latin America, and worsen industrial action in Africa's resource-rich countries, Verisk Maplecroft, a global political risk consultancy, warned in a 2016 outlook report published Friday.
"Verisk Maplecroft highlights low commodity prices as one of the primary drivers of political risk for investors in major producing countries across Africa and Latin America, while the increasing international threat posed by the Islamic State and rising tensions between Iran and Saudi Arabia, are flagged among the foremost geopolitical risk multipliers," the consultancy said in the report.
Crude oil prices tumbled below $35 per barrel on Wednesday to 11-year lows, with the commodity around two-thirds lower since its long decline began in June 2014. Prices of other commodities, particularly metals, have also slumped over the year.
Royal Bank of Scotland warned Wednesday that continued low oil prices this year could worsen the tide of conflict and tensions in the Middle East.
"The Middle East is no stranger to conflict. Most countries remained resilient versus low oil prices in 2015, however. In 2016 we think low oil may exacerbate the crisis and result in a further escalation of geopolitical tensions in the region," Alberto Gallo, head of global macro credit research at the bank, said in a report on Wednesday.
Oil is important in the dispute between Iran and Saudi Arabia, whose animosity long precedes the row sparked by this month's execution of a prominent Shiite cleric. Saudi Arabia is the world's top oil producer and will face increasing competition from Iran, if and when, international sanctions are lifted on the latter country's exports.
"Once sanctions are lifted, Iran may upset the political status-quo established by Gulf Co-operation Council (GCC) nations over the past decade. Iran and GCC nations are currently engaged in a proxy-conflict in Yemen — but as the recent severance of diplomatic ties between Saudi Arabia and Iran suggests, this conflict may escalate," Gallo said.
"With declining regional co-operation there is the risk of lower coordination on oil production/supply potentially leading to a further decline in oil prices and consequently lower growth for the region's oil-exporting nations," he added.
Verisk Maplecroft added that Iranian Supreme Leader Ali Khamenei might pursue a more confrontational foreign policy in 2016, in a bid to appease hardline elements in Iran's theocratic regime. This could pose a threat to the country's efforts to placate the West in a bid to see sanctions lifted.
Iran has already threatened "divine vengeance" on Saudi Arabia for the execution of the Sheikh cleric in early January, while the Iranian public stormed the Saudi embassy in Tehran over the weekend.
The end of the commodity boom has "laid bare the profligacy" of Latin America's two largest economies, Brazil and Argentina, and of the largest oil producer in the region, Venezuela, according to Verisk Maplecroft.
The political picture in both Brazil and Venezuela remains unstable, with deteriorating economies knocking the popularity of the ruling parties and in the case of Brazil, also fueling allegations of corruption.
"The ongoing impeachment process against (Brazilian) President Dilma Rousseff is unlikely to be successful, but it will ensure protracted legislative gridlock during 2016 and prevent the passage of the reforms required to arrest the deteriorating fiscal landscape and restore investor confidence. The mass anti-government protests witnessed in 2015 are set to continue and could spike in the run up to the summer Olympic Games in Rio de Janeiro," Verisk Maplecroft said.
The extractive industries are big employees in several African countries. For example, Botswana is reliant on diamond mining and producing a large volume of copper and coal. Zambia, meanwhile, has been hit by the falloff in the price of copper, which brings in much of the country's foreign earnings.
Verisk Maplecroft forecast that job losses at mines as a result of the decline in commodity prices would provoke industrial action and social unrest in countries including the Central African Republic, Sudan, Kenya, Ethiopia, the Democratic Republic of Congo, South Africa and Nigeria.
"Job losses in the extractives sector of Africa's resource-rich countries are expected to provoke industrial action, while the impacts of depressed oil, gas and metals prices on domestic government spending and rising living costs across the region are likely to stoke social turmoil," the consultancy said.
Countries like South Africa already have a track record of violent strikes at mines. In 2014, the country suffered one of its longest and most expensive strikes when workers at major platinum producers — Anglo American, Imapala Platinum and Lonmin — demanded that wages were doubled. They held out for five months before settling for a smaller pay increase.
Accusations are flying around the Middle East that nearby countries and leaders are buying oil from the so-called Islamic State terrorist group.
On Tuesday, the Saudi foreign minister alleged in an interview with CNBC that Syrian President Bashar Assad had purchased oil from the Islamic State during the first two years of the conflict in Syria.
"He bought oil from them, he allowed them to expand and he allowed them to grow so that he can tell people that it's either me or the terrorists," Adel al-Jubeir, the Saudi minister of foreign affairs, said.
Russia, meanwhile, has insisted that the Islamic State has smuggled oil into Turkey, in allegations that followed the Turkish downing of a Russian plane.
"The crisis between NATO member, Turkey, and Russia over the shooting down of a Russian fighter jet in December 2015, the Russian government's continuous support for Syrian President Bashar al-Assad and, importantly, Moscow's refusal to stop meddling in Ukraine will, to varying degrees, remain points of friction with the United States and Europe," Verisk Maplecroft said, adding that Western sanctions against Russia were unlikely to be dropped in 2016.