In a significant shift, Nigeria, Africa’s largest oil producer, has decided to sell its crude oil in naira instead of US dollars. This decision, announced by the Federal Executive Council (FEC), marks a departure from decades of reliance on foreign currency for oil transactions, aiming to bolster the nation’s economic stability.
According to Mohammed Manga, spokesperson for the Ministry of Finance, this strategic move is intended to enhance the growth and stability of Nigeria’s economy. With approximately 37 billion barrels of oil reserves, Nigeria contributes 3.1% of the world’s total reserves. The timing of this change comes amid ongoing geopolitical tensions, particularly in the Middle East and the Russia-Ukraine conflict, which has led to a surge in oil prices.
The recent conflict between Iran and Israel has driven oil prices higher, with Nigeria’s Bonny Light crude rising from $73 to $78 per barrel. The international benchmark, Brent crude, has surpassed $79, reflecting an increase of more than 10%. The Nigerian government’s 2024 budget is based on a benchmark of $78 per barrel, a target they are now meeting, which could help alleviate the nation’s budget deficit.
Economist Dr. Abdulsalam Muhammad Kani noted that sustained high prices and consistent production could provide Nigeria with a unique opportunity to stabilize its economy. He explained, “If the prices remain high and production stays consistent, Nigeria could see some relief in its debt servicing and public project funding.” Additionally, a stronger naira, bolstered by increased dollar influx from oil sales, might lead to lower costs for imported goods—an essential factor for a country that relies heavily on imports.
Despite the favorable market conditions, Nigeria faces significant internal challenges that could hinder its ability to capitalize on rising oil prices. Energy expert Engr. Sani Yabagi highlighted the pervasive issues of corruption and oil theft, which severely undermine the country’s profits. He emphasized that well-connected individuals are responsible for a substantial portion of the theft, resulting in substantial losses for the nation.
During a recent week alone, the Nigerian National Petroleum Corporation (NNPC) reported 188 incidents of oil theft in the Niger Delta. This rampant theft diminishes the volume of crude available for sale, further complicated by Nigeria’s dependency on imported refined petroleum products. Yabagi stated, “We sell crude oil and buy refined oil back, so even when crude prices go up, we’re still spending the money we make on bringing refined products into the country.”
Recently, Nigeria has made strides toward refining its oil domestically, with the launch of the Dangote Refinery. However, this private operation has limited immediate impact on national revenue. Last week, the federal government began selling crude oil to local refineries like Dangote in naira, reinforcing its commitment to moving away from the dollar. Yabagi pointed out that to truly affect fuel prices, the government would need to sell crude to local refineries at a lower price, as current demand often exceeds NNPC's supply capabilities.
As the Middle East crisis is poised to drive global energy costs higher, Yabagi warned that without effective management of corruption and imports, Nigeria may not reap the expected benefits. He cautioned, “The rising costs of energy might hurt Nigeria more than it helps. We need to address corruption and imports; otherwise, we won’t see much improvement.”
In summary, while Nigeria's transition to naira transactions for oil sales is a bold step aimed at stabilizing the economy, the underlying challenges of corruption, theft, and a reliance on imports could hinder the nation’s potential gains in the ever-evolving global oil market.
October 2024, Cryptoniteuae