Fireworks in the Gulf and the Implication for Nigeria’s Econopolitics By Dodoh Okafor
On Saturday, September 14 2019, 18 unmanned aerial vehicles and about 7 missiles reportedly hit the world’s largest oil processing facility owned by Saudi national oil company- ARAMCO- instantly cutting off an estimated 6% of global oil production. The impact of the attacks- as expected was immediate and reverberated across the globe almost immediately. In less than 72 hours after the strike which Yemeni rebel group- Houthis claimed responsibility for, the price of crude in the international market rose by 10%- the quickest jump in 30 years. As at Thursday, 19th September 2019, Brent Crude which sold for $58 on Friday, 13th September was now selling for around $64 per barrel. Market analysts in New York are estimating that a barrel of crude may be selling for $70 per barrel by the end of September and should the situation escalate as it now seems likely in view of the war-rhetoric from Iran- accused by Saudi and US of masterminding the attacks despite contrary claims by the Yemeni rebels, oil could be selling for about $100 by the end of October.
In an exclusive CNN interview with a senior official of the Tehran government, Iran made it clear that should there be an attack on any of its interest by the US or the Saudis, Iran will be “retaliating in equal measure.” Keen watchers of the unfolding events would recall that on Wednesday, the spokesman of the Saudi Defence Forces showed hardware evidences it claimed implicated Iran in the attacks. The Donald Trump administration in the US has also pointed accusing fingers at Iran, insisting that the government in Tehran planned and executed the attacks on Aramco facilities.
The brewing crises in the Middle East have immense international implications and several analysts are predicting that another war in the Gulf is now becoming inevitable following Tuesday’s declaration by US military forces that it is ready to strike at Iran in retaliation for allegedly attacking the economic interest of US’ biggest ally in the Middle East. Saudi military is also understood to be on a war footing and for many- a retaliatory attack on Iran now is no longer a matter of “if” but “when?” The question of “when” will be answered in the coming days.
Whatever happens in the Middle East in the next few weeks and months will reverberate beyond the region as we are currently observing. The prices of crude oil are already soaring and will tilt a lot of other economic factors including how much the average global citizens pay for basic services and goods in diverse corners of the world.
While series of inventions and discoveries are already coming on board to make oil less relevant in the world economy in the next few decades or thereabout, the truth however is that crude oil still runs the wheels of production, transport and energy all over the world and its dynamics- prices, supply factors and politics- are global in nature. A rise in the price of crude oil means a commensurate rise in the price of petroleum products such as premium motor spirit- PMS, AGO, DPK, aviation fuel and all the other derivatives of petroleum.
These rising prices would affect transportation aswell as electricity costs and would eventually jack up the general price levels – even as income for most remains constant. The economic implications are diverse and could range from falling purchasing power of an average unit of whatever currency you hold in your pocket to wiping off savings and a further decline in standard of living and inevitably- an escalation of poverty levels in most countries especially third world countries where social safety nets are barely non-existent and emergency planning is often haphazard leaving many to the vagaries of global economics.
Beyond the economic implications of a probable war in the Middle East, the political implications must also not be lost on us. Political leaders are bound to lose their grip on power as people struggle to maintain decent living standards in various countries, national debts would mount as balance of payment are altered leading to economic tinkering and calls for new political direction by opposition elements.
As expected, should US get involved in a war against Iran as the Donald Trump government has muted, its allies across the world including the UK, EU and several other power blocks in Africa, Asia and Middle East are likely to show solidarity with the world’s only super power as we have seen happen numerously over the years- with the Iraqi and Afghan wars being the most recent examples. Any leader who fails to calculate properly would most likely lose his grip on power both locally and internationally.
Any war in the Middle East would likely lead to greater global chaos and there can be no telling how far that would go. Already, the economic and political destinies of several nations including the UK is uncertain- not with the confusion around BREXIT, the ongoing trade war between the US and China, the uncertainties in the Korean Peninsula, the return of Russia as a global power bloc, the economic and political chaos across Africa (Xenophobia in South Africa, political dissent in Cameroun, widening insecurity in Nigeria and parts of West Africa) and a combination of other unfavourable factors across several parts of the world.
Where does all of this leave Nigeria?
As already established, Nigeria is part of the global economy and would definitely be affected by any turbulence in the Middle East.
On the positive side, the crises has brought about a jump in the price of crude and the implication is that Nigeria now earns more dollars for every barrel of crude it ships to the international market. With a projected production level of 2.4 million barrels per day, it means that with the prevailing rate, the country now earns around $153.6 million daily from crude oil export alone. At a time of great fiscal constraint and an extensive borrowing to meet recurrent expenditure as recently revealed by the head of the budget office- Ben Akabueze, higher income from crude certainly means good news for all of us. More money means more power to carry out critical infrastructural projects, create employment opportunities and more funds for intervention programs targeted at the poor.
Beyond the higher revenue volume which we are very likely to earn as the Middle East crisis escalates, we may have to look at other variables which may likely cancel out whatever positives that accrue to us from a rise in the international price of crude.
One- Nigeria- according the NNPC still imports over 70% of petrol consumed in the country from the international market. With a rise in the price of crude, it means Nigeria would pay more for every litre of fuel imported. Sticking with the subsidy model which we operate, the outlay on subsidy would shoot up drastically- effectively wiping off whatever gain the country may have made from higher crude prices.
Beyond petroleum products, Nigeria is an import dependent economy. Production costs are bound to rise as crude oil prices rise. These costs would be transferred by the producers to the end users- including average Nigerians. Where does that leave the average wage earner whose lives on a $50 monthly (N18, 000) minimum wage? It is certainly not a savoury posture.
Another factor to consider is our experience from the past.
During the Gulf War which happened in the early 90s when General Ibrahim Babangida was military president, Nigeria earned an estimated $12.4 billion dollars windfall as oil prices shoot up by an about 250% within a few months of the crises involving the US (and its ally), Kuwait against Iraq. Interestingly, not much of a benefit trickled down to the poor masses and a commission of enquiry set up by Babangida’s successor- Sani Abacha- and headed by the outstanding economist- Pius Okigbo- revealed that the accruals from crude earnings during the Gulf War were largely unaccounted for.
Nigeria also earned heavily from crude oil in the last two decades. Curiously, not much of the humongous earnings have been applied into improving the welfare of the greater Nigerian masses with over 97 million living below the poverty threshold- the largest in the entire world. Practical experiences teaches that more government earning simply translates into greater corruption in the public sector, an expansion of recurrent costs- expensive cars for senior government officials, more planes for the presidential fleet, expansive travel delegates for international trips and more opportunities for blind stealing by a few privileged officials and their cronies.
At the moment, there is nothing to suggest that things would be any different for the common man on the streets even if a War in the Middle East pushes crude oil prices to as much as $300/barrel.
What is more likely is a rise in transport cost as fuel queues return owing to uncertainty about pump price as NNPC struggles to pay dubious subsidy claims, furthered by a rise in the domestic prices of goods and with little to cushion the effect by a government many believe to be insensitive, poverty levels would rise further.