Obike Ukoh
Since February 28, when the United States and Israel launched coordinated air and missile assault on Iran, dubbed Operation Epic Fury, the economic hardship in Nigeria have been on the increase.
The hardship is because of the disruption of global oil supply, as a result of Iran’s blockade of Strait of Hormuz, a major maritime window for global oil export from the Middle East. .
Prices of petroleum products have been fluctuating with resultant increases in transportation, food items, and operation costs of production and services.
With deregulation, and President Bola Ahmed Tinubu’s declaration or is it proclamation, on his inauguration that subsidy has gone, the price of refined petroleum product in Nigeria, is now determined by global price movements.
Analysts and commentators opine that Nigeria must follow global trends by adopting strategies to absorb shocks, especially in the petroleum sector.
They say that, that strategy has always been massive investment in the area of construction of strategic reserves.
A Nigerian Energy Economist, based in the United Kingdom, Emeka Eboagwu, stressed that Nigeria cannot afford to find itself in a situation of continuous oil price shocks.
“A refinery operating at a scale of Dangote complex relies on steady flow of crude feedstock.
“Even a brief supply disruption can halt refinery operation, without a strategic reserve of crude oil, the country risks replacing dependence on foreign refineries , with reliance on fragile domestic supply chain,’’ Eboagwu stressed.
He noted that many developed countries have done this years backs, especially after 1973 global oil crisis.
“After the 1973 oil crisis, advanced economies understood that energy security involved more than just access to resources.
“It also required physical stockpiles that could stabilize domestic supplies during geopolitical disruption.“
Under the auspices of International Energy Agency , many nations established emergency reserves, totaling at least 90 days of net oil imports,’’ Eboagwu emphasized.
He cited the example of the United States, with 714 million barrels capacity reserve and India, with 37 million barrels capacity reserve.
The petroleum economist noted that, though the cost of constructing a reserve is enormous, Nigeria could afford it, advising that the money saved from subsidy removal should be channeled to the venture.
“Over the past 20 years, the country has spent billions of dollars managing fuel import crises, supporting subsidy schemes and covering losses from supply disruptions.
“A strategic reserve is an investment in resilience that could lessen the economic harm caused by such disruption.’’
Eboagwu said that there is no better time to embark on that project than now, with the ongoing vulnerability of global oil supply routes, as a result of the US-Iran conflict and resultant blockade of Strait of Hormuz.
In his own contribution, Kelvin Emmanuel, Managing Partner, Energy Consulting Practice, echoed the need for Nigeria to have a strategic reserve.
He lamented that Nigeria cannot benefit from the global energy disruptions as it has no strategic reserve.
“Nigeria must urgently develop a structured crude oil reserve strategy and a national tanker fleet to protect the economy and take advantage of global oil market volatility.
“Nigeria does not have a strategic petroleum reserve stock for times like this conflict, that is separate from the crude held at terminals. Nigeria does not have any crude oil stored for a rainy day,” he noted.
Emmanuel also stressed the need for Nigeria to maintain a national vessel fleet, to enable it benefit from maritime transportation.
“One of the casualties from this crisis in the Middle East is that a vessel that can take up to 30 million barrels is now leasing for about $500,000 per day. Ten weeks ago the price of leasing that same vessel was about $100,000 to $120,000.”
Emmanuel argued that Nigeria could benefit from rising tanker charter prices, if the country maintained its own national fleet.
“In 1976, when Olusegun Obasanjo, was Military Head of State, Nigeria acquired 19 vessels, and later it increased to 27 vessels.
But by 1995, those vessels were no more,” he lamented.
He said rebuilding such a fleet would enable Nigeria to transport its own crude cargoes.
“You need a national strength, tanker fleet, to take advantage of the fact that if you’re creating a strategic petroleum reserve, you can also develop a basket for crude trading, make it easy for the government to profit from and use that crude inventory as a basis to borrow money.”
Emmanuel also emphasized that,“ a strategic crude inventory would not only secure Nigeria’s energy supply during global disruptions, but also serve as a financial instrument.
“When you create a strategic petroleum reserve authority, you have to invest in a portfolio of stocks that can sell domestically and internationally.
“Government can take advantage of it. Sell when price is high and buy when price is low.”
Emmanuel said that the Nigerian government should use the crisis as an opportunity. “Let us not waste a good crisis. The Nigerian government needs to develop a strategic petroleum reserve authority that will not only manage the domestic strategic petroleum stock, but also manage petroleum reserves stored globally.”
He regretted that Nigeria’s approach to energy policy has historically been reactive rather than strategic. “The government needs to be proactive. Nigerian government is reactive. It needs a framework to manage crisis. Government does not do crisis planning or scenario planning for doomsday.”
Mr Peter Obi, Labour Party presidential candidate in the 2023 Presidential Election, also asserted that the surge in the prices of petroleum products was because Nigeria lacks the capacity to absorb shocks from oil disruptions.
“The reason for this is straightforward: most countries, whether they are oil-producing or non-oil-producing, maintain strategic petroleum reserves to cushion against supply or price shocks.
“This means that when there is a disruption in the global oil market, they can release part of these reserves to stabilize supply. However, Nigeria lacks such a buffer, so the impact is felt almost immediately.
“The underlying issue is a lack of planning. Countries that engage in planning create buffers against shocks, while those that do not remain vulnerable to them. The old maxim remains true: when a country fails to plan, it has already planned to fail,” the former governor of Anambra State stated.
The Presidency replied Obi and to some extend those advocating for Nigeria to have its own strategic reserve.
Responding to Obi’s remarks, the Special Assistant to the President on Social Media, Mr. Olusegun Dada, said the recent increase in petrol prices is primarily the result of market forces following the deregulation of the petroleum sector.
Dada explained that in a deregulated market environment, fuel prices are influenced by several global factors, including crude oil prices, exchange rates, shipping costs and supply risks.
According to him, the removal of fuel subsidy has allowed market realities to determine pump prices, meaning developments in the international oil market now directly affect domestic fuel costs.
“In a deregulated system, petrol prices respond directly to global oil prices, exchange rates, shipping costs and supply risks,” Dada said.
The presidential aide also rejected suggestions that establishing a strategic petroleum reserve, would automatically stabilise or control everyday pump prices.
According to him, even countries with large strategic petroleum reserves maintain them primarily for emergency situations such as wars, embargoes or major supply disruptions, rather than for routine price management.
Despite the response from the presidential aide, the issue is clear. Energy economists, key players in the oil sector are unanimous, that Nigeria should have a strategic oil reserve to absorb disruptions and maintain price stability. They say that will in turn guarantee national security.
They also stressed that subsidy does not imply that government will fold its arms and watch citizens suffocate under outrageous petroleum products prices.
If that happens, what then is the role, and usefulness of government, they queried.
Obike Ukoh, former Deputy Editor-In-Chief, News Agency of Nigeria (NAN)
