Why Higher Oil Prices Cripple the Economy

Why Higher Oil Prices Cripple the Economy

The crash in crude oil price is usually identified as the major contributor to the prevailing parlous state of our economy; clearly, the drop in oil prices from over $120/barrel to a more humble price below $50/barrel and the significant drop in output, certainly reduced revenue inflow. Thus, one may be tempted to suggest that if "fortuitously", oil prices soar well above $120/barrel, once more, with production also constantly exceeding 2.5mbd, our revenue base should expectedly flourish and all will be well again.

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

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

The popular expectation that increasingly bountiful oil revenue will assuage our economic distress 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 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 when we earn 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, what do you think will happen to the Chinese economy; of course, the local currency will 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 bountiful export earnings into a curse! This is exactly what increasing dollar export revenue from higher crude oil prices and output does to the Naira and Nigerians.

topics from
There is no comment