Lessons not learnt from falling oil prices

Between July and December this year, oil prices have tumbled from a high of over $100 per barrel to a critical $58; and the signs are that the drop may continue further. The impact of the resultant revenue shortfall on vulnerable countries has been predictably painful. Of significance is that the Organisation of Petroleum Exporting […]

Between July and December this year, oil prices have tumbled from a high of over $100 per barrel to a critical $58; and the signs are that the drop may continue further. The impact of the resultant revenue shortfall on vulnerable countries has been predictably painful.
Of significance is that the Organisation of Petroleum Exporting Countries (OPEC) finds such decline consistent with its long term interest of maintaining market share of 30 million barrels per day, in the face of mounting supply pressures from non-OPEC suppliers like the United States and Russia. A recent supply increase of 6 million barrels a day from the non OPEC caused ripples among members of the group.
OPEC members are more disposed to allowing the market stabilize itself, arguing that artificial intervention likely would be more injurious than allowing market forces tighten prices. The suggestion is that factors such as weather and regular dynamics of the global economy tend to induce changes more naturally and safely, eventually causing the prices to swing upwards.
With the fall in prices, operators of the more expensive shale oil, such as the U.S., are already finding further expansion uneconomical. Drilling of new shale oil wells in the U.S. has begun to wane in the face of price induced pressures. The predominant analysis is that as early as 2020, the U.S. would revert to a net importer as domestic demand will outstrip its productive capacity, thereby leaving nothing for export.
The price fall is imposing across-the-board pain on OPEC members, including Saudi Arabia, the world’s largest oil exporter.  
The major lesson that it can no more be business as usual for vulnerable countries like Nigeria is obvious. Yet how the Goodluck Jonathan administration chooses to address the situation is another matter. While the government has initiated austerity measures, the merit of such action in terms of its remediation impact remains to be seen.
Against the spate of widespread corruption and profligacy in the nation’s public expenditure programmes, early signals from the oil sector, the mainstay of the economy, should have dictated a more discretionary regime of adjustments that is consistent with the scope of the fiscal challenges facing the economy. That is yet to be seen.  The savings made over the years from high oil prices through the excess crude account and the sovereign wealth fund that replaced it have been frittered away in extravagant and non-productive spending.  The purpose of saving for the rainy day has therefore been all but defeated.
Oil supplies over 90 percent of Nigeria’s foreign exchange, which is also utilized rather wastefully on funding imports that in most cases are of questionable productive value to the economy. The ever-increasing dependence on imports has long been identified as a major weakness of the economy, even in better times. With the onset of the new oil price induced challenges, nothing short of political will to turn things around is expected.
If Nigeria needed impetus to restructure the economy for good, the present challenges from the global oil market provide that opportunity. The government should see the present situation as a platform to launch the economy on the road to recovery and self-sufficiency and cushion it from shocks from the global environment.  
It is instructive that the crisis in the oil sector is preceding an election year when Nigerians will go to the polls to elect new political leaderships, another point why the economy should be an important focus of discussion in the run-up to them.