Latest oil windfall, another test for Nigeria

Nigeria may be geographically insulated from the US-Israel-Iran conflict, but the war is creating an economic illusion that Nigeria must manage transparently, strategically and with appropriate frugality. Since February, when the conflict began, the Nigerian treasury has been accumulating excess oil revenues. Crude oil prices have risen to $120 per barrel, against a budget benchmark […]

Nigeria may be geographically insulated from the US-Israel-Iran conflict, but the war is creating an economic illusion that Nigeria must manage transparently, strategically and with appropriate frugality. Since February, when the conflict began, the Nigerian treasury has been accumulating excess oil revenues. Crude oil prices have risen to $120 per barrel, against a budget benchmark of $62 per barrel. This represents a windfall of more than 100 per cent which, in theory, should benefit Nigerians and help the country emerge from its economic quagmire. However, given historical precedents and current realities, this situation calls not for celebration but for careful planning and prudent management.

While Nigeria’s geographic distance from the conflict might appear to be a multi-billion-dollar lottery ticket, it has instead trapped the average Nigerian in a debilitating cost-of-living crisis and the country in a classic resource-curse scenario. Nigerian commuters are now forced to pay between N1,200 and N1,500 per litre of fuel. This represents a sharp increase of between 39.5 and 50 per cent since the closure of the Strait of Hormuz. Given Nigeria’s low per capita income, these prices are simply unsustainable.

While ordinary Nigerians suffer, the country has recorded trillions of naira in excess earnings in just the first two months of the conflict. The government and oil operators reportedly secured an estimated N5.13 trillion ($4 billion) windfall above projected revenues. Nigeria’s domestic oil output rose from 1.48 million barrels per day (bpd) to 1.546 million bpd in an effort to capitalise on global supply deficits caused by disruptions to Middle Eastern shipping following the closure of the Strait of Hormuz. As a result, Nigeria’s highly valued Bonny Light crude became even more lucrative.

The downside is that Nigeria remains heavily dependent on imported refined petroleum products. Consequently, the global surge in crude oil prices immediately inflated the cost of refined products and drove up pump prices. Not even the local production of the Dangote Refinery significantly altered the situation. International crude pricing pressures forced the refinery to raise its ex-depot price of petrol to N1,175 per litre, prompting some fuel depots to suspend purchases temporarily. Rising fuel prices increased transportation costs, pushed up headline inflation and placed additional strain on household budgets for food and other basic necessities.

The oil windfall is largely a product of circumstance rather than sound domestic policy. What the government chooses to do with this stroke of fortune is entirely up to it. Concerns that there may be no meaningful effort to consolidate these gains are both valid and justified. The government’s inability to raise production to its two million bpd capacity is a clear indication of this lack of preparedness. Even in the face of a global supply vacuum, oil theft, corruption and infrastructure decay continue to undermine full optimisation of the sector.

Nigeria has a long history of treating global crises as temporary piggy banks for political elites. The 1973 oil windfall, triggered by the Arab-Israeli War, saw crude prices soar and flooded the treasury with unprecedented foreign exchange earnings. Rather than catalysing sustainable economic and infrastructural development, the government embarked on massive and poorly coordinated spending sprees, expanded the public sector and encouraged elite extravagance. The country gradually abandoned its thriving agricultural sector in favour of dependence on oil revenues. When oil prices collapsed in the early 1980s, Nigeria was caught unprepared and plunged into inflation and a debilitating debt trap.

The same mistake was repeated during the 1990 Gulf War oil boom, when an estimated $12.2 billion in excess earnings disappeared with little or no infrastructure to show for it. Likewise, the oil booms of the 2000s and 2010s, which pushed prices above $100 per barrel, led to the creation of the Excess Crude Account (ECA) to save surplus revenues. However, the account was repeatedly depleted by state governments and federal authorities to finance short-term political priorities and fiscal shortfalls. Much of what remained was channelled into the corruption-ridden fuel subsidy regime, effectively using oil profits to subsidise imported fuel instead of investing in domestic refining capacity.

Already, there are indications that much of the excess revenue from the current boom is being used to service existing debts. If this trend continues, the entire windfall risks becoming little more than an accounting illusion, leaving the economy as vulnerable as ever. Nigeria cannot afford to repeat this mistake.

We must state categorically that an economy which relies on overseas warfare for its fiscal health while neglecting the welfare of its own citizens is both morally and economically bankrupt. This government must not repeat the errors of its predecessors. It must abandon self-congratulatory rhetoric, stop transferring the burden of international price shocks onto Nigerians, and deploy this windfall strategically to achieve genuine energy independence, economic resilience and long-term national prosperity.