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Nigeria Worse off With Iran Nuclear Deal
-Oil Revenue to slide further
Nigerians should brace for harder times with expected further reduction in the country's capacity to earn income from oil, the nation's primary source of revenue which has seen harder times of recent. With a daily production capacity of close to 2.7 million barrels, Nigeria's oil revenue has been cut to fifty percent since the recent downturn in international crude price leaving the country with an estimated close to $20 billion in reduced revenue this year. Oil sales for about $53 dollars per barrel, a reduction from over $115 just at the beginning of this year, marking more than fifty percent cut in revenue for the country. This situation, economic analysts say, is currently a major concern for the new Buhari administration which will have to find means to fund its liabilities.
The income reduction is being felt in every facet of the country's life, from bankrupt state governments to civil servants in various states whose salaries are not paid regularly and government contractors who have to deliver goods and services and wait months for payment.
The reduced in flow of revenue also accounts for recent spike in the currency exchange rate putting the local currency, naira, in its worst ever position against the US dollar. Naira exchanges for between 230 and 250 naira per dollar, a rate which a few decades ago was two to one in favor of the naira. This recent spike, we gathered has been a result of reduced availability of the dollar in the government funded foreign exchange market. With government's lower earning capacity, the amount of foreign exchange going into the market has been impacted drastically. Still, it is going to get worse with the recent international nuclear deal between world's powers and Iran.
While the world celebrates the potential for peace inherent in the nuclear deal with Iran, Nigerians should worry about the negative impact. The deal will free the Islamic republic of the burden imposed by years of economic sanctions among which will be a freedom to sell millions of barrels of oil in the open market. Iranian oil has been under restrictions previously and a sudden inflow of its full 3.7 million barrels per day capacity will definitely drive prices further down.
Iran boasts of over four percent of the world's oil production most of which it had previously been prevented from selling but which will now be emptied into the market to satiate their pent up need. Nigeria, on her part is totally dependent on oil production for the country's economic survival and Nigeria only produces about two and a half percent of the world's oil output.
What this means is a glut occasioned by Iranian supply which will flood the market and Oil prices will likely slump again. Also, Iran will likely sell mostly to Asian nations, the same market Nigeria has been dealing on since reduction in US imports in the last few years.
If this scenario plays out as indicated, Nigeria will have less income to fund capital projects and the current problem of insolvency faced by many states will exacerbate. Recently, the federal government had to set aside over one trillion naira to help states with backlogs of workers' salaries. The fund consists of about $2.1 billion to be shared by the various tiers of government as well as close to half of that amount set aside to provide soft loans and lines of credit to states in need. The federal government will also be providing guarantees for the restructuring of the states' commercial loans.
How the new administration will cope with this impending scenario remains to be seen.