Nigeria shifts away from US dollar, opts to sell crude oil in local currency
Nigeria, which holds the title of Africa’s largest oil-producing country, has decided to abandon the tradition of selling its crude oil in US dollars. The Federal Executive Council (FEC) made this strategic decision in an effort to enhance the country’s economic growth and stability. Nigeria has heavily relied on foreign currency, particularly the dollar, for its oil industry for many years.
With approximately 37 billion barrels of oil reserves, Nigeria accounts for 3.1% of global reserves. Given the ongoing geopolitical instability, such as tensions in the Middle East and the Russia-Ukraine conflict, the timing of this move couldn’t have been more fitting.
The recent conflict between Iran and Israel has caused oil prices to skyrocket. Nigeria’s Bonny Light crude oil, in particular, has jumped from $73 to $78 per barrel. The international benchmark, Brent crude, is now at $79 per barrel, a surge of over 10%. Iran’s significant role as an oil producer and its launching of almost 200 missiles at Israel have further escalated the situation.
Nigeria’s 2024 budget was set with a benchmark of $78 per barrel, a target that has now been met. If daily production can meet the set target, it could potentially aid in reducing the budget deficit. Economists, like Dr. Abdulsalam Muhammad Kani, believe that if the upward trend in oil prices is sustained, Nigeria could seize a rare opportunity to stabilize its economy, which could provide relief in debt servicing and public project funding.
In addition, an increase in dollar influx into the economy could alleviate pressure on Nigeria’s foreign exchange. This could lead to a stronger naira, potentially reducing the costs of imported goods, a significant concern for a country that relies heavily on imports. However, there are other obstacles that Nigeria must overcome.
Corruption and oil theft remain major challenges in the country. Energy expert Engr. Sani Yabagi points out that Nigeria loses a significant amount of crude oil to theft, primarily orchestrated by well-connected individuals. This rampant theft prevents the country from fully capitalizing on the rise in global oil prices. In just one week, the Nigerian National Petroleum Corporation reported 188 oil theft incidents in the Niger Delta alone.
Furthermore, Nigeria’s reliance on imports for refined petroleum products weakens its oil revenue. Despite recent efforts like the opening of the Dangote Refinery, which focuses on local oil refining, the country still mainly imports refined oil. This means that even when crude prices surge, a significant portion of the revenue is spent on importing refined products.
Although Nigeria has started selling crude oil in naira to local refineries like Dangote, Yabagi believes that unless the government lowers the price for these refineries, the impact on fuel prices will be limited. For now, Dangote continues to purchase crude oil from other nations due to the inability of the Nigerian National Petroleum Corporation to meet its entire demand.
While the Middle East crisis is expected to drive global energy costs even higher, Nigeria may not benefit as much as anticipated without addressing issues like corruption and imports. Without effective management in addressing these challenges, the rising energy costs could potentially harm Nigeria more than it helps.