"The moment we [Africans] lost our languages was also the moment we lost our bodies, our gold, diamonds, copper, coffee, tea." - Ngugi wa Thiong'o

29 October 2014

Saudi Oil War: the impact on Nigerian economy

Saudi Arabia, the giant of the Organisation of Petroleum Exporting countries (OPEC) is back at what it knows how to do best; oil warfare.

Saudi has previously led two oil wars: This first led to the overthrow of the Shah of Iran in 1979 by the Ayatollah’s Islamic revolution. The second was during the Iraq/Iran war that ended in 1984. The two oil wars were targeted at Iran to subdue its rising influence both in the OPEC and the Middle East.

This present oil war is particularly targeted at Iran, Syria and their grand patron; Russia. Saudis want to cripple Iran and its Shia brand of Islam, which is spread across Iran, Iraq and Syria. Assad of Syria, an ally of Iran must be toppled by all means while the Russian support to these countries must be curtailed.

Russia is already facing sanctions from European Union (EU) and United States (US) for its role in the Ukraine crisis. Hitting Russia’s oil revenue will further distress its resources and thus limit its support for Iran and Syria.

Saudis are supplying more crude oil than demanded, hence the fall in prices. Recently, they told grumbling OPEC members to get used to lower oil prices. Saudis are on a mission. They will to go to any length to achieve their goal. With nearly $750 billion in foreign reserve, I doubt if they will blink first.

China’s growth is slowing; lower oil prices will be welcomed, which will help to reignite its economic growth. EU and the US wouldn't mind keying into Saudis’ program especially in this winter period. It will present their citizens with cheap winter bills. Moreover, the measure will hamper Russia’s economy, US arch rival.

The bullets have starting flying and there’s bound to be some stray bullets that will surely hit the Nigerian economy. Assuming it hasn't done so. This is because Nigerian economy is heavily dependent on oil proceeds. About 90% of its budget is based on oil revenue.

Brent crude benchmark has fallen from about $110 per barrel to $86. Yet the yardstick for Nigeria 2015 budget is set at $78. Why do the government of Nigeria believe that oil will not fall below $70 even down to $50 per barrel?

A typical Nigeria judgement: when the price of oil was $110 per barrel the budget was based on $75 per barrel. Now that the crude oil price is falling the government has increased their budget benchmark to $78. This is one of the few judgements of the federal government of Nigeria that doesn't make sense.

And yet, some analysts have predicted that the price of crude oil will fall to $70 per barrel. If this becomes the case, Nigeria will find it difficult to finance its budget at $78 benchmark let alone balance it.

However, the falling oil prices will mean cheap petroleum products in Nigeria. If the country knows its onions, this will be the best time to remove the monstrous oil subsidy. The subsidy removal will have less impact on the people now that oil is cheap. The money saved from non-oil subsidy will finance the budget.

And for the state governors who run to Abuja every month for their share of oil proceeds; they should start looking inwards for the financing of their budgets. That era of ‘share the money’ is going; we are entering the period of ‘make the money’. Any of them who cannot raise funds internally should simply resign.

Finally, when Saudi Arabia’s Gross Domestic Product (GDP) per capita of $25,852 and $750 billion in reserves are compared to Iran’s $4,763 GDP per capita and $68 billion reserves; Saudi Arabia has started an oil war it tends to win. And as they stated; Nigeria and other OPEC countries should get used to lower oil prices.