Nigeria and Iraq are the two most vulnerable members of OPEC that are badly affected by Coronavirus crisis which has badly impacted the price of crude oil and analysts fear that the two countries, which solely depend on oil to grow their economies, are at the brink of collapse.
According to analysts at Rystad Energy, the global upheaval which has resulted in oil price crash, upending the current fragile balance of power because key oil-producing countries, including Iraq and Nigeria, can’t buy their way out of this crisis with near-zero-interest loans like the Saudis and Americans can.
They said even with Brent at $25 (indeed, even when it fell below $20), the Saudis were throwing around cash at all kinds of investments, including COVID-sinking cruise lines. The American shale patch can bail itself out if it wishes to, even amid desperate talk of looming bankruptcies.
But in Nigeria, where oil is about 9percent of GDP and 90 percent of exports, and with a break-even price of around $57 a barrel and also a fiscal break-even of around $100, the economy is in serious trouble.
If the economy is in trouble, Rystad Energy analysts said, the government is in even bigger trouble as roughly 20 million people are unemployed, and that is now expected to climb another 25 percent. It’s enough to bring down a government, with the only lifeline now a $3.4-billion IMF emergency loan just approved. But making matters worse is the fact that no one even wants to touch Nigerian oil right now because there isn’t enough demand for it–even at $10 a barrel. And it’s competing with overproduced U.S. crude (light and low in sulfur).
Already the Federal Government on Tuesday revealed plans to cut the oil price benchmark for the current budget to $20 per barrel. The development would make it the second time the government is slashing the oil benchmark for the 2020 budget.
The sharp fall in the price of crude oil had earlier forced the government to slash the benchmark from $57 per barrel to $30.
Minister of Finance, Budget and National Planning, Zainab Ahmed, disclosed Federal Government’s intention to further slash the benchmark on Tuesday.
Ahmed who spoke during a web conference which focused on the impact of low oil prices on Nigeria’s economy, said: “We are in the process of an amendment that is bringing down the revenue indicator to $20 per barrel,”.
The decline in revenue following the sharp fall in the price of crude oil is already taking a toll on Nigeria’s economy and Ahmed had in March disclosed that the N10.59tn budget would be slashed by 15 percent.
The minister, at the web conference, also said Nigeria’s oil and gas projects would be delivered later than originally planned as a result of upstream budget cuts.
The Federal Government is planning to cut oil production to 1.7 million barrels per day from the 2.1 million barrels per day proposed in the 2020 budget.
The planned production cut is to be made in line with an agreement reached by the Organisation of Petroleum Exporting Countries and its allies better known as OPEC+.
In Iraq, the fragility will translate into a boon for the Islamic State first and foremost, while Iran and the United States grapple for control in this proxy war setting.