This document discusses Nigeria's dependence on oil revenues and how declining global oil prices threaten the country's economy and ability to fulfill political promises made during recent elections. It notes that Nigeria needs an oil price of $123 to balance its budget but prices have declined to around $50 per barrel. Lower prices are likely to continue for years, which could force Nigeria's new government to scale back promises if revenues do not match projections. The document examines factors like US shale production, OPEC policies, and global economic and political conditions that are keeping prices low.

1. This Matter of Nigeria’s Oily Elections
It hasbeen aneventfulcoupleof monthsinNigeria,withthe 2015 general electionsassumingalarger
thanlife stature, andpractically takingoverthe dailylife of the averagecitizenandnearlyeverysingle
moment of his day.
The elections have been headlinedbyatoo-close-to-callpresidentialelection betweenanincumbent
and a formidable challenger; and has in no small measure piqued the interest and attention of the
global community – countries, agencies, heads of government and the media.
Alongwiththis international spotlight beamedonthe country hasalsocome a certainuneasiness,an
uncertainty, and a political air so tensed you could almost slice it with a knife.
As politicians and their avid supporters (plus political jobbers too) hobble and stagger with arrogant
swaggeruntopodiums,screamingintomicrophonesandsinginginhigh-pitchedvoicesthe praisesof
their candidates and casting aspersions on opponents, they occasionally take a break to dance and
sway away– evenif itisclumsilyso–toShokimovesandthe latestcacophonyof youthbeats intown.
We are entertained,irritated,optimisticandpessimisticall atonce.We have all beencaughtupinthe
frenzyandour liveshave suddenlybecomefrozen. Thanksto‘TwitterPower,’ newsandgossipblogs,
complementedbyourdailystaple of newspapersthatbringusup to speedevenwhenwe are noton
any the ubiquitous campaign grounds. Yes, it’s been a whole big lump of greasy business.
The campaign promises have been so, so impressive. Sometimes mindboggling;sometimes bogus-
sounding like, as the Americans would say, a heap of baloney.
Bogus,because whilebloatedpromisesare beingmouthedonthe campaignpodiums,scantattention
has been given the chief vehicle to fulfilling them and the ultimate tie-breaker: crude oil.
While Nigeriahasbecome one huge political festival ground withall the gladiatorsand Amazons,oil
too is busy with its own global campaign to recover from a sharp slump late last year. Its success or
failure at it might just put a lie to all the campaign promises when the chips are down and a new
government is inaugurated in May.
Will the politicians still stick by their words when oil prices fail in its own current campaigns and
Nigeria’s energy revenues don’t exactlymatch global crude prices “projections”? Or will they find a
ready alibi to shelve some of those promises or cut back on them?
Global oil expertssaygiventhe current global scenarioand oil politics,crude price islikelytoremain
below$100 for yearsto come. The futuresmarketsuggeststhe price will recoverslowlytohitabout
$70 by 2019, while most experts forecast a range of $40-$80 for the next few years. Anything more
precise is futile.
According to a Deutsche Bank/IMF report, Nigeria needs oil pricesto stabilize at $123 to balance its
budget projections. The figure is a far cry from the current world price which dipped below $50 a
barrel forthe firsttime since May2009 afterafairlystable periodfrom2010 until mid-2014of around
$110 a barrel.

2. The governmentwasforcedtopegthisyearbudgetat$45perbarrel afterhopespricesmightperhaps
recoverquicklydwindled. Will the Nigeriangovernment – new or old – seize the momentto further
diversify the economy and maximise the country’s earning potentials.
Saudi Arabia, and Gulf producers such as the United Arab Emirates and Kuwait have amassed
considerable foreign currency reserves, which means that they couldrun deficits for several years if
necessary.
However, Nigeria and other OPEC members such as Iran and Iraq with greater domestic budgetary
demands because of their large population sizes in relation to their oil revenues, have less room for
manoeuvre. These countries have combined foreigncurrency reserves of less than $200bn, and are
already under pressure from increased US competition.
Nigeria,whichisAfrica'sbiggestoil producer,hasseengrowthin the rest of itseconomybut despite
this it remains heavily oil-dependent.Energy sales account for up to 80% of all government revenue
and more than 90% of the country's exports.
Crude prices surged again on March 26, jumping $3.72 to $54.55/bbl as Saudi Arabia and its allies
launchedairstrikesinYementoneutralizeIranian-backedShiiteHouthi rebels. Buthopesthatpockets
of global political upheavalslikethe tension inYemenwouldsparkthe revival of oil pricesmightjust
fizzle out as soon as it begins as prices fell more than $1 in the next day as nuclear talks with Iran
progressed.
Analysts say predicting the oil price is a bit of a mug’s game as there are simply too many variables
involvedtomake anykindofmeaningful,definitiveforecast. Whatwe doknow isthat,despitearecent
upturn, the price of oil has slumped almost 50% since last summer following the longest-running
decline for 20 years.
With the boomingUS shale industryshowinglittle signsof slowing,andgrowingconcernsabout the
strength of the global economy,there are good reasons to suspect that the current slump in the oil
price will continue for some time.
Thisispreciselywhen OPEC,the cartelof majorglobaloilproducers,wouldnormallystepintostabilise
prices by cutting production. It has done so many times in the past, so oftenin fact that the market
expects OPEC to intervene.
Thistime it hasn’t.In a historicmove at the endof last year, OPEC saidnot onlythat it wouldnotcut
productionfromits30 millionbarrelsaday(mb/d) quota,buthad no intentionof doingsoevenif oil
fell to $20 a barrel.
And this was no empty threat. Despite furious opposition from Venezuela, Iran and Algeria, OPEC
kingpin Saudi Arabia simply refused to bail out its more vulnerable cohorts - many OPEC members
needanoil price of $100 or more to balance theirbudgets,butwithanestimated$900bninreserves,
Saudi can afford to play the waiting game.
OPECnowsuppliesalittle over30%of the world'soil,downfromalmost50% inthe 1970s, partlydue
to US shale producers flooding the market with almost 4 mb/d from a standing start 10 years ago.

3. WithoutOPECartificiallysupportingthe oil price,andwithpotentiallyweakerdemanddue tosluggish
global economic growth, the oil price is likely to remain below $100 for years to come.
-Kelvin Keshi Senior Strategy Manager, Zenera Consulting.