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Updated: No sunny side for Nigeria as oil price tops $105 on Russia’s invasion of Ukraine

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BRENT crude price topped $105 per barrel on Thursday afternoon after President Vladimir Putin ordered Russian troops into Ukraine, The ICIR’s checks have shown.

This is the highest price level seen of Brent crude in seven years. Brent is the international benchmark for oil prices.

But Nigeria is not likely to benefit from the situation due to an opaque and expensive petrol subsidy and the poor management of the economy.

Russia is world’s second highest oil producer after Saudi Arabia and biggest gas supplier on the globe. A disruption in supply of its oil and gas will diminish global supplies and raise prices, economists say.

Putin announced ‘a special military operation’ in Ukraine’s Donbas region on Thursday, followed by explosions in state capital Kyiv as well as other parts of the country.

The European Council is preparing to impose ‘massive and severe consequences on Russia for its actions’ after the UK and the US had imposed economic sanctions on the Eastern European country.

US President Joe Biden has said he will continue to monitor the situation from the White House and will meet members of the G-7 on the situation.

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Any attempt to start a Third World War will have a devastating impact on world’s economy amid COVID-19 challenges, but it is likely to raise oil prices, say analysts.

Nigeria is expected to benefit should there be any increase in oil price, but it is squandering its oil windfall in an opaque subsidy characterised by corruption.

President Muhammadu Buhari, who touted subsidy as ‘a scam’ before coming to power in 2015, is preparing to spend $2.6 billion on the scheme in 18 months and analysts say it may not be unconnected with the imminent 2023 general elections.

There are concerns that the removal of subsidy will raise transportation costs and worsen the plight of 105  million extremely poor Nigerians, but experts are concerned with lack of transparency in the scheme.

The International Monetary Fund (IMF) says Nigeria is not going about the scheme in the right manner, noting that sustaining the regime will likely depend on overdrafts from the Central Bank of Nigeria.

The IMF says fuel subsidy impacts Nigeria’s fiscal position negatively and increases the country’s fiscal deficit.

“Certainly, subsidy is not sustainable, which is why there is need to accelerate engagement with relevant stakeholders to come up with a policy transition strategy that is sustainable, realistc and pragmatic,” Economist and the Chief Executive Officer of Centre for Promotion of Private Enterprise (CPPE) Muda Yusuf told The ICIR.

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Labour unions are opposed to subsidy removal due to its deleterious impact on the masses.

Due to this, Director General of the Lagos Chamber of Commerce and Industry (LCCI)  Chinyere Almona, in a statement sent to The ICIR, suggests that subsidy removal should be done in phases.

“While we support the full implementation of the Petroleum Industry Act (PIA) 2021 and the total deregulation of the oil and gas sector, we are not insensitive to the plight of the masses that may feel the pains of some of the provisions like the removal of fuel subsidies.

“Since the announcement of the planned removal of fuel subsidies, there have been numerous reactions expressing displeasure and readiness to stage protests against the planned action.

“In the face of this dilemma, we recommend that the removal is phased and with a complement of heavy investment in critical infrastructure that supports production in the economy.”

Nigeria is in a precarious financial situation. External debt has risen from $10.71 billion in 2015 to $37.955 billion in September 2021, according to data from the Debt Management Office (DMO).

Investors are increasingly seeing Nigeria’s Eurobond as risky and are surprisingly demanding higher yields.

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Price of Nigeria’s Eurobond issued recently fell by 12 per cent, according to FMDQ, with the yield rising from 8 to 10 per cent.

This is a bad sign for the economy. BusinessDay reported on Tuesday that a $4 billion Eurobond issued by the country had been suspended owing to poor market conditions.

Associate Professor of Economics Doyin Salami, who now advises the Federal Government, had painted a bleak picture of Nigeria’s fiscal profile in 2021.

“Domestic resource mobilisation is the only basis that is sustainable, the government needs to be clear on what it is that it is spending on that can be ceded to the private sector,” he added.

“Nigeria must move from where we have been for far too long. Where have we been? We’ve been in that situation where there is a covenant between the government and the people, ‘we the people will not pay taxes, and in return, we would not ask what oil money is spent on.

“As it is, the government is now asking us to pay taxes, but remains unwilling to answer the supplementary question ‘what is its spending doing for the people?’”

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