Monday, January 24, 2011

Nigeria: Understanding the Political Economy and Rising Oil Prices. Great article!

Hugo Odiogor

The news that the global price of crude oil is hitting the $100 mark may seem to be good for free-spending politicians who must have been under pressure of how to rationalise their pillaging the external reserves and the excess crude account.

With more revenue coming from the nation's major export product, especially, in an election year, what else could the leadership ask for? But, those who are perceptive enough to cast their minds back to October 2008 will recall that the soar- away prices of oil at close to $100 mark, there were serious concerns about the possible impact on the world economy.

The 2009 global financial crisis, the worst since the Great Depression of 1929, was unprecedented in the history of the modern world and left a catastrophic effect on the financial well-being of millions of people around the world.

It exposed the vulnerability of Nigeria's over-dependence on crude oil exports as its major source of foreign exchange earnings. But, more importantly, it threw up some contemporary issues surrounding the use of fossil, especially the pressure from international environmentalists on climate change, as well the political dynamics in the demand and supply chain, has compelled the United States Congress to enact the American Clean Energy and Security (ACES) Act of 2009, with the aim of reducing the country's oil import and carbon emission by one-quarter in the next 25 years.

There is no doubt that oil is the lifeline of global industrial economy as well as domestic economy. This energy source is like blood in the vessel of the machines and homes in the industrialised world and the cost of energy has been rising steadily in recent months.

The unprecedented winter, the steady economic growth in China, India and Brazil has kept the prices of oil high. But, for the slowly recovering economies of Europe and the United States, the soaring cost of oil is a nightmare as it hinders the ability of industries to recover and create jobs. There is uneasy moments for Britain, Spain, Greece, Poland, France, Ireland even Tunisia in Africa, where austerity measures announced by governments to manage their wobbling economies have pushed them to angry citizens.

Apart from the rising energy cost there has been rises in food prices just as was experienced in 2008. In fact, the riots in Tunisia are linked to increases in food prices. While the American economy has recorded slow growth of three per cent, Germany remains the strongest economy in Europe with manageable inflation rate. As expected the fluctuating prices of oil has been a source of worry to member-nations of G-8 and Organisation of Economic Co-operation and Development (OECD), who are major trading partners of Nigeria.

As stated earlier, the United States is leading a crusade to cut down on their consumption of fossil fuel while it invests in alternative energies. The attempt to embark on its deepwater oil exploration has been a source of intense politicking which was worsened by the disaster of the coast of Louisiana where the BP oil platform collapsed and spilled millions of crude oil in the Gulf of Mexico.

International energy and diplomacy expert, Professor Kayode Soremekun, believes that as "the world's 10th largest exporter of crude oil, Nigeria must be sensitive to the economic development in the major destinations of its crude oil because the link between the suppliers and the consumers of oil is interlinked."

According to him, "the policies taken by the consumer-countries must have serious impact on Nigeria's economy, because these are countries whose multinational companies extract Nigeria's oil and determines the fate of producing countries. We can see from the Wikileaks revelation that Shell has such pervasive influence in Nigeria to the extent that Nigeria is Shell and Shell is Nigeria".

The ability of the industrialised nations to manipulate the political developments in the countries that produce oil is not in doubt as we saw in the 1980s when Margaret Thatcher and Ronald Reagan collapsed the global oil market using Saudi Arabia and Kuwait.

The impact of that action resurfaced in 1990 when the late President Saddam Hussain cited that as one of the reasons for invading Kuwait in August 1990. Western nations went to war gain in 2002 because of oil. Put differently, they can exploit such situations to their maximum advantage.
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Nigeria was unable to make maximum benefit from the increases of oil prices in 2008 because of the militancy crisis in the Niger Delta, but the situation has changed significantly. The rise in the price of crude oil may be seen as a good omen, but experience has also shown that the more money the country makes from oil, the more profligates and wasteful it becomes.

Nigeria is strategic to the global energy need, it is also crucial to the maintenance of security of the Gulf of Guinea region; the fear of the magnitude of the crisis and insecurity in that region forced the US to create the African Command.

Nigerian political leaders who believe that their pro-Arab policies is what the country need to develop must recognise that the dynamism of the global economy dictates that Nigeria must play its international politics right as Iran and Libya would support any policy that could lead to destabilising Nigeria, to give them advantage in the global oil market.

Nigeria on its part must take the issue of diversifying its revenue base seriously as the volatility of oil prices makes it difficult to benchmark its development on such a commodity.

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