Adewale Sanyaolu with agency reports
Stakeholders in the energy sector appears divided over the current crisis involving the United States of America (USA), a world power and major oil producer , and Iran, also a major contributor to the global oil market.
While some believe that the crisis involving the two countries could lead to a spike in oil prices, others believe that not much would happen to prices rising to higher levels.
US President, Mr. Donald Trump had, on Thursday, January 2, 2020, ordered a drone attack on the 62-year-old head of the Iranian Revolutionary Guards (Quds Force), Major General Qassem Soleimani, who died instantly along with the Deputy Head of the Iraqi Popular Mobilisation Forces, Abu Mahdi al-Muhandis, outside the Baghdad Airport.
This issue is of grave concern to Nigerians for economic and security reasons. Many analysts are already expressing their fear of a possible Third World War if the escalation is allowed to tip over. Even if there is no large-scale conflict of that proportion, our economy is bound to be affected because of its effect on crude oil exports.
Oil prices peaked at $70 per barrels at the height of the crisis, which is about $10 in excess of Nigeria’s $60 per barrel 2020 oil price budget benchmark. Though, prices are again down to $65 per barrel with industry watchers speculating a spike in the months ahead should the crisis abate.
But, Minister of State for Petroleum Resources, Mr.Timipre Sylva, while x-raying the killing of Soleimani, admitted that the crisis may favour Nigeria but the country doesn’t want trouble in the world.
Corroborating the standpoint of Sylva, energy analyst and partner, Bloomfield Law Practice, Mr. Ayodele Oni, said the crisis will be in Nigeria’s favour Reasons oil traders should be nervous Providing more insight into the crisis, an online publication, The Converstaion disclosed that after rising slightly soon after the killing of Soleimani on Jan. 3, oil prices quickly dropped down.
The publication said, these are grim new events in a volatile region essential to global oil supply, yet they had no important impact on oil prices, adding that over a few days, prices went from $66 per barrel to $69, then down to $65. This isn’t even a hiccup; in a year, it will be invisible on the price curve.
‘‘True, President Donald Trump said Iran was “standing down,” and there would be new sanctions, not attacks. Yet this president is notorious for impulsive decisions. Iran, moreover, may take its time in seeking revenge.
And in the midst of military tensions, Iran mistook a commercial airliner for a warplane and shot it down, killing 176. It was a terrible echo of the 1988 downing of an airliner by the U.S. warship Vincennes in another moment of high military anxiety.’’
Reasons they aren’t
The publication said further ‘‘Oil traders therefore have much reason to be nervous. But they aren’t. Why?
According to The Conversation, a big reason, which was noted in a previous Conversation article, is that the global oil market has abundant supply, fed by soaring U.S. production. ‘‘In under a decade, America has been transformed from a huge importer to a major new exporter. These exports grew from 0.6 million barrels per day in early 2017 to over 4 million by December 2019.
The publication stated further that the United States, the former Soviet Union and Russia, and Saudi Arabia have for decades been the top three oil-producing countries in the world. Widespread use of the drilling technique known as fracking in the U.S. in the late 2000s resulted in a production boom.
‘‘For several years, OPEC and Russia have cut their own production to keep prices from falling, due to U.S. supply. Also, oil demand has weakened due to the global economic slowdown, caused by the U.S.-China trade war, a slumping auto industry and other factors. This has supported a perception that the oil market can absorb almost any shock, even the loss of life in a military exchange.
Experienced observers I know say that a stable oil market is often an oxymoron. A host of churning uncertainties exist just beneath the surface. War in the Gulf, however limited initially, could easily get out of hand – that’s what wars do. No one in the region wants this.
Yet no one is in control of an extremely tense situation that continues to worsen and now involves loss of life. To me, oil prices today do not reflect this reality of risk.
Higher prices would be better for a reason that has nothing to do with geopolitics, too. The world needs less consumption, fewer emissions, and help in its shift to electric transport. Cheap oil will not help.’’the publication stated.
FG, expert reacts
The position of the Federal Government was captured thus by Sylva in a recent Daily Sun publication ‘‘You see, when you say we benefit from crisis elsewhere, it is a very sad thing, We shouldn’t think that way.
We don’t want crisis in the world. What we say in the oil industry is that we don’t want prices of oil too high or too low.
We want it at a certain level. OPEC always says we don’t want too high price for oil or too low price for oil, we want the price to remain at a certain point. As at now, Nigeria is not complaining because, two days before the incident, oil was already $68 per barrel, well over our benchmark of $60 for 2020 budget. These issues that is happening will affect oil price this way or that way but Nigeria is hoping that the world remains peaceful and that things continue to remain peaceful.
Having said that, we know that tensions like this will lead to oil price increase but if you look at it from the backdrop of what is prevailing now; Iraq has always been a crisis territory. Today in OPEC, Iraq is not given any quota as such because they are not a major producer due to their crisis. They are not able to produce oil, so if you have more crisis in Iraq, I don’t think it will significantly affect what is happening around the world.’’
Oni, submitted that Nigeria stands to benefit from the current tension between the United States of America and the Islamic Republic of Iran.
According to him, Nigeria’s 2020 budget is premised on daily oil production of 2.18 million barrels benchmarked at $60 per barrel; however, prior to the assassination of Suleimani by the American government, oil prices were around $69.08 per barrel.
Oni explained that oil prices rose (and have been rising since) above $70 per barrel on January 6th 2020, following the escalation in U.S.- Iran conflict, which signifies good news for oil-dependent economies like Nigeria. The unfolding tensions between two of the world’s biggest oil exporters could, therefore, improve budget implementation.
‘‘Increasingly, the heightening concerns about the conflict in the Middle East could impact global oil supplies severely over the coming months as the region is currently responsible for roughly half of the world’s oil production. The potential shortage of oil globally may be an indicator for the OPEC to increase the supply of Nigerian oil to the global market. Which would generate significant revenues for the market.
Other than the disadvantages of increasing insecurity and heightened religious-political tensions in certain sects in Nigeria, the Nigerian oil sector generally stands to benefit from these tensions.’’