Some 49 years after the global energy crisis triggered by the oil embargo on western countries by Arab oil exporters during the Arab-Israeli war of 1973, the world is once again in a catastrophic energy crisis. Like the 1973 energy crisis, the current one is again triggered by war.
In 1973, Arab oil exporters led by Saudi Arabia slammed massive oil embargo on Western Europe and North America as Israeli military pounded Egypt and other neighbours during the Yom Kippur war.
The embargo instigated oil price surge and fueled global inflation. The current situation is more of a boycott by consumers. Unlike in 1973 when the producers refused to sell oil to western consumers, it is the consumers this time that have refused to buy oil from Russia, the world’s largest crude oil exporter.
That is the west response to the invasion of Ukraine by Vladimir Putin, Russia’s despotic ruler. The west feels that it could weaken Putin’s war chest if the European Union (EU) and North America boycott Russian oil and gas.
EU alone was spending $29 billion daily on Russian oil and gas. The boycott has created a catastrophic supply deficit that pushes prices to unprecedented levels. Oil was trading below $90 per barrel before the invasion of Ukraine on February 24, 2022. Last week oil price hovered around $123 per barrel.
Four months into the unprovoked invasion, the most crucial effect of the western consumer boycott is that global economy is teetering on the brink of an encompassing recession. Gas prices have risen to unprecedented levels in the EU as Russia shuts the gas pipelines against some EU consumers who defied Putin’s orders to pay in Russian ruble rather than U.S. dollars.
In the U.S. the pump price of petrol has reached unacceptable limits. In California, America’s richest state, fuel retail outlets in some high brow areas sell petrol at a record $6.2 per gallon.
Consequently, U.S. inflation has surged to a 40-year record rate of seven per cent. There are fears that oil price will remain in three digits throughout 2022 because no one knows how long the destruction of Ukraine by Putin will last.
Even if the war ends and Putin occupies the Donbas region of Ukraine to protect Donetsk and Luhansk, the two self-styled republics recognised only by Russia, western boycott of Russian oil will almost certainly remain in place to compel a recalcitrant usurper to cede the occupied territory to the rightful owner. Where that happens, no one expects crude oil price to falter below three digits.
Nigeria is perhaps the least country expected to suffer excruciating pains from the current global energy crisis. Nigeria produces the largest quantity of crude oil in Africa. With oil price at $123 per barrel, everyone expects Nigeria to smile to the banks rather than groan under the weight of surging energy prices.
But Nigeria is something of an enigma. It exports crude oil and imports all the refined petroleum products it consumes. Nigeria flares associated gas worth N300 billion in its oil fields annually and imports cooking gas for local consumption. It imports with a depreciating naira that makes the cost unbearable for consumers.
Because the price of refined petroleum products is higher than that of crude oil, Nigeria’s gain from the surge in crude oil price is insignificant. Besides, 500, 000 barrels of crude oil is stolen daily. That makes it very difficult for Nigeria to raise the forex for refined petroleum products imports.
Worst still, a catastrophic petrol subsidy fraud by Nigerian National Petroleum Company (NNPC) Limited consumes N2 trillion from the nation’s miserable annual budget.
At the current price of crude oil, the open market pump price of petrol should be N550 per liter.
The federal government decrees N165 as official pump price leaving a margin of N385 per liter as subsidy. With NNPC fraudulently doubling the daily consumption figures, the World Bank believes that Nigeria will spend N6 trillion on petrol subsidy in 2022. Both the government and consumers are gnashing teeth in excruciating pains.
Nigeria’s biggest trouble emanates from the unbearable prices of diesel and cooking gas. Diesel sells for N850 per liter in Lagos, up from N350 in January. In Ibadan, the pump price of diesel is N1, 150 per liter.
Petroleum product retailers have exploited the surge in the pump price of diesel and unilaterally hiked the pump price of petrol to N180 in Lagos. In some parts of the country it sells for N200 and above.
That is an open rebellion against the N165 decreed by the federal government. Ironically government has maintained a studied silence on the illegal hike in the pump price of petrol.
The hike in diesel price happens at the most dangerous time for Nigeria’s one-handed economy. Nigeria’s eternal darkness has worsened in the last three months with some communities having public power supply for less than five hours a day.
One source estimates that Nigeria’s economy runs on some 164 million micro, small, medium and large power generating sets. That explains why petrol pump price was illegally hiked to N180 per liter. Petrol dealers contend that they run their retail outlets on diesel powered generators at a pump price of N1, 000 per liter. Even the trucks hauling petrol from depots run on diesel.
The chain reaction of the bumper hike in the pump price of diesel is just beginning. Prices of food items will simply surge beyond the reach of Nigeria’s 122 million extremely poor people.
An articulated truck hauling just 28 cows from northern Nigeria to Lagos burns 1, 200 liters of diesel during the journey. At the current pump price, that is N1, 020, 000.
When that is factored into the cost of the trip, cow dealers will pay anything from N1.5 million to transport 28 cows to Lagos. The same thing will apply to other food items and manufactured goods transported to distant parts of Nigeria.
The price of 12.5kg of cooking gas has jumped to N10, 000 from N4, 000 last year. Unlike diesel consumers, house wives using cooking gas have options. Thousands have abandoned the expensive cooking fuel and returned to the bush to hack down trees for firewood. That passive move will simply accelerate the journey of the Sahara Desert to the Atlantic Ocean and worsen climate change.
The federal government can avert the imminent galloping inflation by facilitating diesel importation with forex at the official window rate of N420 to the dollar.
It would reduce the pump price of diesel to N600 per liter at the most. That will tremendously moderate the surging inflation rate.
