Whichever way it is viewed, Nigeria faces more economic trouble ahead following Iran’s agreement with the world’s superpowers. Its defiance before now had triggered a raft of sanctions by the United Nations against its oil – production and sale – and freezing of about $150 billion in foreign banks, which had put its economy in dire-straits. In the first instance, this could further push down oil prices, but more strikingly, other countries may increase their own production in response to Iran’s oil sales. Though the development looks scary for Nigeria and countries battling with resource-revenue volatility,an ambitious and credible medium-term fiscal consolidation programme now will minimise the shock.
The deal, struck a fortnight ago, provides for cuts in its centrifuges by two-thirds; putting a ceiling on its uranium enrichment at 3.7 per cent; limiting the stockpile to 300 kilogrammes for 15 years, among others, a process that will be supervised by the International Atomic Energy Agency experts. A sequential compliance with the terms will beget lifting of the sanctions against it. As the custodian of the world’s third largest proven crude oil reserves estimated at 158 billion barrels by the Organisation of Petroleum Exporting Countries, but with an economy in tatters, Iran will definitely make the most of this unfurling order.
With the sanctions, much of the oil it would have sold has been stored in floating vessels off its coast. With its current daily production at 2.8 million barrels despite global sanctions, economic and geo-political imperatives strongly indicate that its production will ramp up to 4 million bpd after its reunion with the rest of the world. Like Nigeria, its sales will go mainly to China, India, Japan, South Korea, and Turkey.
This shift in relations also means much to its neighbour, Saudi Arabia, with which it is involved in a supremacy tango in the Middle East. Saudi authorities, in one accord with Israel on the nuclear deal, are also not unmindful of the economic power the resolution would bequeath to Iran. Therefore, it is not unlikely that it might use its dominance of the global crude oil market to fight Iran.
Since prices began to cascade, international pressure on Saudi Arabia to cut its production in order to shore up prices have come to naught, even as it told OPEC that its June production hit a record high of 10.56 million barrels per day. If it would not yield to peer nudging to decrease output with Iran on the market fringes, a change of heart now is a remote possibility. Ultimately, oil prices, which have been plummeting down since mid-2014, will worsen.
Where does this leave our economy? Evidently, with oil prices crashing, Nigeria’s economy is in a tailspin with its dependence on this commodity trade for survival. Multinational oil companies and banks have recorded job losses and cuts in spending. Others in the private sector are also under pressure. On Monday, a barrel of crude oil sold at $46.39 at the international market, which represented a four-month low, as against a rally of $63 per barrel, early last month. Nigeria has been recording monthly shortfalls in oil revenue since last year. In April for instance, oil receipts declined by N78.36 billion, making it difficult for the three tiers of government to discharge their statutory obligations.
That is not all. Reuters, a news agency, quoting OPEC and Interna tional Energy Agency data, reported in May that more oil was in the market than actually required, leading to a glut of 1.5 million barrels per day. This explains why vessels with Nigeria’s crude oil are floating on the sea, as buyers are being scouted in Europe and other parts of the world. With a sharp decline in oil prices leading to a rapid fall in the value of our currency, the vagaries of the naira exchange rate for converting revenues will also affect budget implementation.
But Nigeria’s odyssey to this cul-de-sac was not fortuitous. Decades of mismanaging oil revenues, mindless official stealing of public funds; the discovery of alternative energy sources; the US reduction of its patronage of Nigeria’s oil following its discovery of shale oil, and new entrants into the oil market, have long been ominous signs, criminally ignored by state officials. Worse still, China, which recently replaced the US as the biggest buyer of our crude has had to soft-pedal, as its economy dips; while India, another trading partner, now prefers Iraq’s cheap crude to Nigeria’s valued Bonny light.
Today, the US no longer buys crude oil from Nigeria. The US White House Economic Council Director, Cecelia Munzo, explains that over the last few years, “US oil production has ramped up significantly by more than 50 per cent, to now over 8½ million barrels per day,” This outlook, the Labour Secretary, Jeffrey Zients, says means that the country now produces more than it imports.
But the insolvency of the states, which climaxed in 22 of them owing between two and 11 months arrears of salary, is a point not lost on anyone. It is unimaginable that amid this clear and present danger some governors are still reckless and impervious to reason, evident in the bloated cabinets they have continued to assemble without their states’ capacity to increase internally generated revenues to run their governments.
Now, as it might take Iran at least six months to reasonably implement the nuclear deal, and for its benefits to trickle in, its inherent danger for Nigeria could be mitigated if we begin without further delay to initiate a prudent fiscal policy and clamp down on corruption. Nigeria’s stolen wealth, including the $150 billion the President said was stolen in the last 10 years, should be recovered.
