Why Higher Oil Prices Cripple Nigeria’s Economy

Why Higher Oil Prices Cripple Nigeria’s Economy

The crash in crude oil price is usually identified as the major contributor to the prevailing parlous state of Nigeria’s economy. Clearly, the drop from over $120/barrel to a more humble price below $50/barrel, with a significant drop in output, has certainly reduced government’s revenue inflow. Consequently, one may suggest that, if oil prices, once more, “fortuitously” soar well above $120/barrel, and if production also constantly exceeds 2.5mbd, Nigeria’s revenue base should expectedly flourish and all will be well again, as more money becomes available for government to spend and stimulate the economy.

Hereafter, we shall examine this popular perception in the following interrogative narrative.

Will higher oil prices and output be a blessing to Nigerians?

This popular expectation may not actually stand up to scrutiny. We may recall that even when oil price approached $150/barrel, with a dollar reserve windfall above $60bn, more Nigerians inexplicably reportedly became unemployed and joined the ranks of the poor with a subsistence income of less than $2/day!

Why does the Nigerian economy suffer when crude oil price rises?

This is a good question, because, it is ironical that our economy should suffer with increasingly more dollar revenue. But the reason is quite simple, for example, if China were to immediately create the Yuan equivalent for her trillions of dollars export earnings, the local currency will of course, become embarrassingly surplus everywhere and will inevitably quickly lose much of its purchasing value. Ultimately, even the Chinese will prefer to hold a more stable currency than their own Yuan. Indeed, any country that subjects their currency to such reckless humiliation will inevitably turn otherwise bountiful export earnings into a curse! Regrettably, this is exactly what increasing dollar export revenue from higher crude oil prices and output has done to the naira and Nigerians.

Are you saying that increasing dollar earnings is actually the cause of the unrelenting burden of too much naira in the system?

Yes, that is so, and until the current misguided counterproductive system of infusing export dollar revenue into the system is stopped, it may be better for us to pray that oil prices do not rise to enhance export earnings! This is because, the bountiful dollars from rising oil prices ultimately promotes an EXTREME liquidity problem when naira allocations are deliberately substituted every month for distributable dollar denominated revenue.

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