Oil prices rose above $70 on Monday, January 6th, 2020, following the escalation in U.S.-Iran conflict triggered by the assassination of Iranian General, Qasem Soleimani by an American airstrike. For oil-dependent economies like Nigeria, the spike in crude prices is good news.
In the 2020 budget, the federal government estimated 2.18 billion barrels per day (bpd) at a price of $57 per barrel. The unfolding tensions between two of the world’s biggest oil exporters could, therefore, improve budget implementation.
The international oil benchmark, Brent crude, jumped 1.5 percent to as high as $70.74 per barrel, its highest price since September, before easing to $69.17 per barrel on Monday. While the price of West Texas Intermediate, the U.S. crude oil marker, strengthened on Monday by 1.7 percent to a high of $64.72, before easing to $63.85 by lunchtime in London.
While analysts are concerned about the implications of the conflicts for the global markets, the prevailing situation benefits Nigeria in the short term as it would get more earnings from oil exports.
But the situation is a “double-edged sword” according to Emeka Ene, the Managing Director at Oildata Energy Group, who stressed the need for Nigeria to be neutral in the current group-political face-off.
It would be recalled that the last time crude oil traded above $70 per barrel was in September 2019 after drone strikes, which the U.S. blamed on Iran, temporarily knocked out half of Saudi Arabia’s oil production.
On Sunday, January 5th, the U.S. State Department said it expected an increase in the attacks on oil facilities and other targets in Saudi Arabia, based on the widespread belief that Iran would fight back for the killing of Soleimani.
Oil prices, according to Michael Pearce, a senior U.S. economist at research group Capital Economics will “likely rise much further if Iran retaliates, either by attacking Saudi oil facilities as it did in September, or attempting to block the Strait of Hormuz, through which 20 percent of global oil supply is transported.”
Following the assassination, Iran has said it would no longer respect the nuclear accord commitment signed with world powers in 2015. Tensions between the U.S. and Iran started in 2018 when the U.S. threatened the country’s nuclear programme and prevented its capacity in nuclear weapon development, while re-imposing sanctions, which affected the country’s oil export.
By Ahmed Iyanda
