US-Iran Crisis: Why $31m daily oil windfall may not benefit Nigerians

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Nigerians may not benefit from the higher oil revenue the country is making due to the rising price caused by the raging face-off between the United States and Iran. Oil prices have risen significantly since last Friday, after Qasem Soleimani, a top Iranian commander, was killed in a US strike ordered by President Donald Trump. The killing has escalated tensions in the Middle East, which is home to major oil-producing countries, and a key energy supply route.

 

Based on yesterday’s Brent crude, the global benchmark, against which Nigerian crude oil is measured; the product gained 2.4% to reach $71.34 per barrel. This is the first time prices have hit that amount in more than six months, and the country is already experiencing a windfall of about $31.26 million daily.

 

This means that the 2020 budget plan is now riding on over $14 excess crude oil price benchmark, going by $57 per barrel multiplied by the 2.18 million barrels per day (mbpd) approved for the year. While the escalating tensions last and the price is sustained at the current level, the country would be gaining $31.26 million daily and capable of accreting more than $1 billion in a year, assuming that production estimate is maintained.

 

Still, some experts have expressed worry that the development may not really bring immediate relief to the country’s 2020 deficit plans put at about N2.3 trillion amid uncertain revenue projections, as the budget is already on auto-mode for borrowing. This is because crude oil earnings above the budget benchmark are first pooled to the Excess Crude Account (ECA), and subjected to the protocols of the federal and sub-national before arriving at a decision. This again depends on the whims of the executive.

 

Besides, Nigerians may not benefit from the rising oil prices as experienced in the past have shown that even at above $140, the country still could not achieve something substantial with the oil price windfall, in terms of infrastructure development, and the money ended up mostly in private pockets.

 

In addition, as an import-dependent nation, especially of refined petroleum products, part of the gains from the current oil price hike will be lost to subsidy payments through higher landing cost. As a result, analysts differ over expectations of a limited response that won’t significantly disrupt crude supplies, keeping a hold on oil prices, also an indication that Nigeria’s expected windfall may not last.

 

Already, the subsidy on Premium Motor Spirit (PMS), popularly known as petrol, has risen to N49 per litre as the expected open market price of the commodity hit N182.28 at the weekend, according to the latest data from the Petroleum Products Pricing Regulatory Agency (PPPRA).

 

The ex-depot price for collection of petrol, as captured in the templates, remained at N133.28 per litre, indicating that the Nigerian National Petroleum Corporation (NNPC) subsidized the commodity by an average of N49 per litre during the review period.

 

Analysts told Huhuonline.com that the excess oil revenue could be used to finance supplementary budget if need be; reduce the level of borrowing and fiscal deficit; and increase foreign inflow.

 

The development, though beneficial to Nigeria in the short term should be a cause for worry, particularly for the global economy, which may be plunged into a crisis that could also revolve round to negatively affect Nigeria.