Nigeria’s troubled economy, which is on the brink of a recession, is expected to worsen following the lifting of economic sanctions on Iran by the United States which effectively re-admits the country into the international oil trade.
The sanctions put in place in 2012 was lifted after Iran met the terms with six world powers to stop its allegedly weaponized nuclear programme.
“Today marks the start of a safer world,” said U.S. Secretary of State, John Kerry.
“We understand this marker alone will not wipe away all the concerns the world has rightly expressed about Iran’s policies in the region. But we also know there isn’t a challenge in the entire region that wouldn’t become much more complicated, much worse, if Iran had a nuclear weapon,” he added.
Iran has hailed the lifting of the sanction as a vindication of its power and influence in the world.
But Iran’s joy may be Nigeria’s woes.
With the lifting of the sanctions, Iran, which has the fourth largest oil reserve in the world (160 billion barrels) is expected to flood the international oil market with more oil which could worsen the ongoing glut that has reduced the price of crude from $105 per barrel to about $30 per barrel.
Also, the middle-eastern country recently announced that it is capable of producing oil at $1 per barrel; which means it can afford to sell its oil below the official international rate if it pleases.
The re-entry of Iran into the international oil trade could also see India, Nigeria’s top buyer of crude (India currently imports 750,000 barrels per day from Nigeria), look towards neighbouring Iran for its oil needs, further dipping Nigeria’s revenue stream. India buys about a third of Nigeria’s daily production while the U.S. currently buys none.
Last year, U.S. financial group, Goldman Sach, predicted that the present glut (without Iran’s supply) in the market could drive prices as low as $20 per barrel. This is an indication of a possible economic problem for Nigeria as the 2016 budget was benchmarked on $38 per barrel. This could possibly increase the budget deficit of $11 billion dollars.
A further drop in Nigeria’s oil export earnings is likely to drop the value of the naira below its present N305 to a dollar in the black market, a 43-year record.
President Muhammadu Buhari, so far, has resisted calls to devalue or float the Nigeria by discontinuing its dual exchange rate regime that seemingly only benefits few well-connect business moguls. The official rate of the Naira is about N197 to a dollar.
All attempts by the Central Bank of Nigeria, CBN, to arrest the fast plunge of the naira has so far been unsuccessful. The recent decision by the CBN to stop selling foreign currency directly to Bureau the Change operators has backfired, causing a drop in the value of the naira by almost N30.