By Adedapo Adesanya
On Friday, January 3, 2020 the United States president, Mr Donald Trump, ordered an airstrike, which killed top Iranian General, Mr Qassem Soleimani, the head of Iran’s elite Quds military force and one of the most powerful figures in the country.
This spurred hike in oil prices as Brent crude oil futures, the global benchmark, coursed more than 4 percent, while the West Texas Intermediate (WTI) crude oil jumped more than 3 percent due to the escalation of the geopolitical tensions between the U.S. and Iran.
For a country like Nigeria, whose mainstay is oil, this development turned out to be a blessing because global events, which badly affect prices oil, have always been a major source of worry for government due to low revenues generated from the sale of the black gold.
But with the ongoing tensions from the assassination of the Iranian military chief, more money would continued to be raked from the sale of crude oil at higher prices.
In fact, Nigeria will like prices of oil to continue to trend higher at the global market because in the 2020 budget, the benchmark for crude oil was pegged at $60 per barrel.
Since last Friday, when the unmanned US drone attacked Mr Soleimani, prices have hovered around $70 (on Friday, January 3), $69 dollars over the weekend, and as the time of this report at $68 per barrel. This means prices are still in a safe net for the country.
By estimates, Nigeria produces over 1.5 million barrels of oil per day and at with an average increase of $69 per barrel since Friday, according to analysis by Business Post, the country has raked over $400 million so far from the sale of the commodity.
However, analysts have noted that a further escalation of the Mideast tensions could drive prices up as Iran’s Supreme Leader Ayatollah Ali Khamenei has vowed to inflict “severe retaliation” on those involved in Mr Soleimani’s death, and following this, the United States has also strengthened its military presence in and around the region.
A retaliation means that oil will rise with analysts saying that Iran’s could initiate attacks on oil tankers in the Persian Gulf, as it did in 2019 with a British tanker and a number of drones. This would provide support for oil prices but would be not hold on for much longer.
A bigger occurrence would be an attack on oil infrastructure of US allies in the Persian Gulf such as the September strikes on Saudi oil infrastructure, which led to a loss of 5.7 million barrels per day of oil production capacity when Iranian-backed Houthi rebels attacked the facilities.
The biggest would be if Iran closed off the Strait of Hormuz, which serves as a passageway for a major portion of the oil supply. Such an action would limit access to Asian markets where China, India, Japan and South Korea, some of the largest consumers are located.
However, even with the possible rise, oil prices face huge pressure from non-OPEC supplier like the United States, Brazil, and Norway, who would want to increase their output and eventually crash prices or lead the market to an oversupply which the OPEC and its allies – which includes Nigeria took a decision to curb by reducing oil production by 1.7 million barrels per day to help prices and stop oil glut this year.
But whichever way, Nigeria will continue to cash in on the crisis and use the opportunity to shore up its external reserves, which have depleted in recent times due to low prices of crude oil.
Dipo Olowookere