Nigeria Changes Currency for Oil Trade
Nigeria, Africa's largest oil producer, is ending the sale of oil in US dollars and switching to trading in its domestic currency – the naira. This significant decision was made by the Federal Executive Council (FEC) to strengthen the Nigerian economy.
According to Mohammed Manga, spokesperson for the Ministry of Finance, this shift is expected to improve the country's economic growth and stability. Nigeria, which holds approximately 37 billion barrels of oil reserves (3.1% of the world’s reserves), is facing an ideal opportunity to make this change due to geopolitical tensions such as those in the Middle East and the war in Ukraine.
Rising Oil Prices Due to Middle East Tensions
The conflict between Iran and Israel has driven oil prices up. Nigeria’s Bonny Light crude oil has increased in price from $73 to $78 per barrel. The global benchmark Brent crude oil has risen by over 10%, now trading at $79 per barrel.
Nigeria’s 2024 budget is based on a reference price of $78 per barrel. If the country meets its daily production targets, this development could help reduce Nigeria's budget deficit.
Potential Stabilization of Nigeria's Economy
Economist Dr. Abdulsalam Muhammad Kani stated that if oil prices remain high and production stays consistent, Nigeria could stabilize its economy. According to him, this could provide relief for Nigeria’s debt service and the financing of public projects. Additionally, a higher inflow of US dollars into the economy could strengthen the naira and lower import costs, which would positively impact the prices of goods.
Corruption and Oil Theft Remain a Challenge
Despite rising oil prices, Nigeria continues to face problems with oil theft and corruption, which undermine the potential benefits. Energy expert Eng. Sani Yabagi highlights that the profits from oil often end up in the hands of thieves, resulting in significant losses for Nigeria.
According to a report from the Nigerian National Petroleum Corporation (NNPC), 188 cases of oil theft were reported in the Niger Delta between August 24th and 30th, which drastically reduces the amount of oil Nigeria can sell, even as prices rise.
Challenges in Refining Oil
Nigeria has only recently begun refining oil domestically with the opening of the Dangote refinery, which is a private operation. However, its impact on national revenues has been minimal so far. While Nigeria is now selling oil to local refineries in naira, Yabagi warns that without further actions, this alone will not solve deeper issues.
Outlook for the Future
As the Middle East crisis continues, global energy prices are expected to rise. While this could bring short-term gains for Nigeria, without proper management, the country may not benefit as much as it could from this increase.
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