Nigeria, Africa's largest oil producer, no longer sells its crude oil in US dollars. The government has decided to sell it in naira.

The change was decided by the Federal Executive Council (FEC). Nigeria’s oil industry has long relied heavily on foreign exchange, particularly the dollar.

Mohammed Manga, spokesman for the Ministry of Finance, explained that the strategic change will improve the growth and stability of the Nigerian economy.

With about 37 billion barrels of oil reserves, the country accounts for 3.1% of the world's reserves. Given the current geopolitical instability, including tensions in the Middle East and the war between Russia and Ukraine, the timing could not be better.

Crude prices rise on Middle East tensions

The conflict between Iran and Israel has pushed up oil prices. The price of a barrel of Nigerian crude oil, Bonny Light, has risen from $73 to $78.

The international price of a barrel of Brent crude, the world's benchmark, is now $79, up more than 10%. Iran, one of the world's leading oil producers, has fired nearly 200 missiles at Israel, further aggravating the situation.

The Nigerian government has set its 2024 budget at $78 per barrel, a figure it is now meeting. If production reaches the daily target, that could help reduce the budget deficit.

According to Dr Abdulsalam Muhammad Kani, an economist, if this upward trend continues, Nigeria could enjoy a rare opportunity to stabilise its economy. He said:

"If prices remain high and production remains constant, Nigeria could benefit from some relief in servicing its debt and financing its public projects."

At the same time, a larger inflow of dollars into the economy could ease pressure on Nigeria’s foreign exchange. A stronger naira could reduce the cost of imported goods, a major problem for a country that imports almost everything. Kani explained:

“The more dollars we earn from oil, the stronger our currency could become, which means cheaper goods for Nigerians.”

But that's not the whole picture.

Oil theft and corruption remain major obstacles

Despite the rise in oil prices, Nigeria still faces internal challenges that threaten any potential profits. Energy expert, Engineer Sani Yabagi, pointed out that corruption and oil theft are rife in the oil sector, eating into Nigeria’s profits.

Yabagi points out that Nigeria loses a lot of crude oil to theft, mostly by well-connected individuals.

“The money that Nigeria should be earning from its crude oil is ending up in the hands of thieves. This is a huge problem, which is preventing the country from taking full advantage of the rising global oil prices.”

Between August 24 and 30, the Nigerian National Petroleum Corporation (NNPC) reported 188 oil thefts in the Niger Delta alone. And this was in just one week.

This level of theft significantly reduces the amount of crude that Nigeria can sell, even if prices rise. Yabagi explained that Nigeria's oil revenues are further weakened by the fact that the country imports most of its refined oil products.

"We sell crude oil and we buy back refined oil. So even when crude prices go up, we continue to spend the money we make to bring refined products into the country."

Nigeria only recently began refining its oil, with the opening of the Dangote refinery. But this is a private operation, so its impact on national revenues is minimal for now.

Last week, the federal government began selling crude oil to Dangote and other local refineries in naira, solidifying its decision to move away from the US dollar. But according to Yabagi, this is not enough to address the bigger problems. He said:

“Unless the government sells crude to local refineries like Dangote at a lower price, the impact on fuel prices will be limited. For now, Dangote continues to buy crude from other countries because the NNPC cannot meet its full demand.”

The Middle East crisis is expected to drive global energy costs even higher. While this could bring short-term benefits to oil-producing countries, Mr Yabagi believes that without proper management, Nigeria may not reap the benefits it expects.

He added: “The rising cost of energy could hurt Nigeria more than it helps. We have to tackle corruption and imports or we will not see much improvement.#MarketDownturn #nigeria #dollar #uniswap #unis $USDC