Nigeria, Africaâs largest oil producer, has officially moved away from selling crude oil in US dollars. The Federal Executive Council (FEC) has made the strategic decision to sell its crude in naira, marking a significant shift for the countryâs economy, which has relied on foreign currency, particularly the dollar, for decades.
According to the Ministry of Finance spokesperson, Mohammed Manga, this decision is aimed at enhancing the growth and stability of Nigeriaâs economy. With approximately 37 billion barrels of oil reserves, accounting for 3.1% of global reserves, the timing of this move aligns with ongoing geopolitical instability, including tensions in the Middle East and the Russia-Ukraine conflict.
Rising Crude Prices Amid Middle East Conflict
As tensions escalate between Iran and Israel, global oil prices have surged. Nigeriaâs Bonny Light crude has risen from $73 to $78 per barrel, while the international benchmark, Brent crude, has increased by over 10%, now sitting at $79 per barrel. Iran, a key player in global oil production, has fired nearly 200 missiles into Israel, further driving up prices.
Nigeriaâs 2024 budget, set with a benchmark of $78 per barrel, now appears achievable. If production meets daily targets, it could help reduce the nationâs budget deficit. Economist Dr. Abdulsalam Muhammad Kani suggests that sustained high prices and consistent production could present a unique opportunity for Nigeria to ease debt servicing and fund public projects.
Kani further explains that an increase in dollar revenue from oil exports could alleviate pressure on Nigeriaâs foreign exchange, potentially strengthening the naira and reducing the cost of imports a critical issue for a country that imports a vast majority of its goods.
Challenges Persist: Oil Theft and Corruption
Despite rising oil prices, Nigeria continues to face internal challenges that threaten potential gains. Energy expert Engr. Sani Yabagi highlights the persistent issues of corruption and oil theft, which are draining the countryâs profits.
According to Yabagi, much of Nigeriaâs oil is stolen by well-connected individuals, significantly reducing the revenue the country should be earning. Between August 24 and 30, the Nigerian National Petroleum Corporation (NNPC) reported 188 oil theft incidents in the Niger Delta alone, showcasing the magnitude of the problem.
Additionally, Nigeriaâs oil revenue is weakened by its reliance on imported refined petroleum products. Although the country has recently begun refining oil locally, with the opening of the privately-owned Dangote Refinery, its impact on national revenue remains limited.
Last week, the government began selling crude oil in naira to Dangote and other local refineries, further reinforcing the shift away from the US dollar. However, Yabagi warns that this alone may not resolve the larger issues. He explains that unless crude is sold to local refineries at lower prices, the impact on fuel costs will be minimal.
As global energy costs continue to rise due to the Middle East crisis, Yabagi believes that without proper management, Nigeria may not fully capitalize on the potential benefits. While short-term gains could be realized, long-term success will depend on addressing the root causes of oil theft and improving domestic refining capacity.
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