Russia-Ukraine war: Impact on oil prices

Russia-Ukraine war: Impact on oil prices

As Vladimir Putin seeks to act out his fantasies and launches his Operation Occupy Ukraine and we see the impact on oil prices, it’s troubling to see how the “Occupy Naija” protest has helped leave Nigeria economically exposed to the effects of the instability currently going on in Eastern Europe.

How so? Nigeria was paying roughly $7bn yearly on fuel subsidies and the Goodluck Jonathan administration decided that it was best to have this $7bn spent on other sectors. A decision that was supposed to be followed by the proper integration of the private sector into the oil refining space and eventually help Nigeria find a market-defined price range in the same way that had been achieved with the telecommunications industry.

A sensible choice but the timing that had it announced on Sunday, January 1st, 2012 Nigerians woke up to a new year was unwise. In response, the Nigerian Civil Society quickly launched a protest called “Occupy Nigeria” the very next day to demand the reversal of the decision.
The Nigerian House of Representatives vehemently resisted the change and after 10 days of intense protests, the price was later reduced to N97.

Fast forward to 2022 and the subsidies are still in place and rising even though the fuel price is now N165 (If you can get it).

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Nigeria still spends roughly $7bn on subsidies yearly and the total reliance on fuel imports means that any increases in the price of crude oil lead to an increase in the amount spent on the fuel subsidy.
Well right now the price of the global oil benchmark, Brent crude, hovers around the $102-$105 mark and Nigeria will suffer because it is a country that is a major producer of crude oil and a major importer of refined petroleum products simply because the government refuses to let the private sector take its rightful place in the industry.

If we say an average of $6bn has been spent yearly on fuel subsidy payments since 2012, then in total Nigeria has spent 60 billion dollars on fuel subsidies over the past decade.
$60bn is 30 Trillion Naira.
What exactly have we gained from this?
It’s cliched to talk about how much more useful this money would have been if invested sensibly elsewhere while Nigerians paid the true market rates for refined petroleum products but cliches are often true.

“The more you sweat in peace, the less you bleed in war.” is a quote from the famous American general Norman Schwarzkopf and the principle behind it continues to be underrated by governments around the world.
It simply refers to the importance of foresight and proactive action to minimize the impact of future troubles. We had an opportunity as a nation to discuss and accept the hard decisions required to make progress and we chose to bury our heads in the sand.

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We used to hear a lot about how the more favorable economic conditions of the GEJ and Obasanjo administrations were a function of high oil prices but now we have a situation where Timipre Sylva, a Nigerian Minister of State for Petroleum Resources openly says that he would prefer the prices of crude oil to stay around the $70-$80 mark.

GEJ met heavy resistance when he sought to remove subsidies. For some strange reason, President Buhari has had little or no resistance when raising the pump price from N87 to N145 and the previously announced decision to remove subsidies in 2022 has been suspended apparently for political reasons related to the coming presidential elections.
Putin’s ego-driven “Occupy Ukraine” campaign has guaranteed that Nigeria is going to pay even more dearly for “Occupy Naija”. We played ourselves.


Eugene Uzor

Eugene Uzor

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