Breaking

Tuesday, 29 May 2018

SAUDI ARABIA COULD LOWER NIGERIA’S OIL WINDFALL


Saudi Arabia’s moves to lower oil prices could have a negative effect on Nigeria’s budget and economy. The Middle Eastern oil giant seems to have reacted to a tweet by United States President Donald Trump condemning the high oil prices.

Why is Saudi key ?

Saudi Arabia’s is the biggest oil producer among the Organization of Petroleum Exporting Countries (OPEC) members. 6 of the 10 largest oil-producing countries in the world are OPEC members.

How high crude oil prices affect the United States 

High crude oil prices lead to an increase in the production costs, as well as transport fares in the United States. Crude oil prices and the US dollar tend to have an inverse relationship. Higher crude oil prices leads to a weakening of the US dollar.

Implications for Nigeria

Government revenue

For a country, that has barely recovered from a recession, a drop in oil revenue could have adverse effects on the economy. Nigeria’s government is largely dependent on crude oil for revenue. An oil shock in 2016 pushed the economy into recession.
The National Assembly, two weeks ago passed the 2018 budget but jacked up the crude oil benchmark from $45 to $51.

Exchange rate

The foreign exchange market which had hitherto been stable has of recent come under pressure due to demands from summer travellers.
Exchange rate volatility also filters into the cost of goods and services. Nigeria is a largely import-dependent economy, both for finished goods and raw materials for industries.
Depreciation of the Naira in 2016/2017 led to a spike in inflation.

No comments:

Post a Comment