The Weapon Fashioned Against Nigeria is Oil
A short true-life story.
I left my office building on a hot Lagos afternoon (the heatwave is a topic for another day) to get lunch at my regular spot. It had been a few days since I last went there due to whatever reason. Upon arriving, I placed my usual order, only to hear “Ma, the new price per portion of rice is …”
I kid you not, it was 2x the normal price.
I sounded like a broken record the number of times I asked the waiter “Are you sure? When did the price change?” I was in complete amazement.
The following morning, I stood in the kitchen with my mum complaining about how I barely had anything left of my salary after paying for transport and feeding every day. Then I left for work, stopped by my usual bakery for breakfast snacks, and guess what…?
Need I say more?
My previous article was me explaining how the lovely guys at NBS calculate the inflation rate and how prices rise at a different pace each month, therefore determining if inflation is higher (fast pace) or lower (slow pace).
And since then, you guys, prices in Nigeria have been running!!
While the most recent inflation numbers showed that CPI (if you can’t remember what this means, read my previous article again) rose by 15.70% in February, it of course doesn’t fully capture the crazy hike in prices we witnessed in March so let’s wait and see March inflation figures.
Why are prices going crazy? Any link to the Russian-Ukraine war? Does the war even affect us at all?
I wrote a 6-page research report on how the war in Ukraine affects Nigerian investors for my workplace. You can read here.
Now let’s dive into what’s causing all this nonsense. I can’t even eat food in peace!
Fuel Scarcity in Nigeria
Remember in Social Studies when they ask us “Enumerate 5 challenges facing the Nigerian society” and your answers are for sure: 1) Corruption 2) Unemployment 3) Bad governance etc.
Well, in Economics when you replace ‘ Nigerian society’ with ‘Nigerian Economy’, your number one answer should always be oil as in 1) Mono-economy/Dependence on oil. Your 5 marks are sure once you begin in that direction.
Therefore, I’m certain it comes as no surprise that fuel scarcity is the weapon fashioned against Nigeria in these tough times.
I believe it’s very clear what fuel scarcity means but then, how does it play out? Why is the one thing you’re good at producing still scarce??
- Nigeria produces and exports crude oil. Keyword: crude. We have it in abundance under the earth however, when we extract oil in its raw form, it can’t be used. It needs to pass through a process of refinement to be converted into fuel, diesel, kerosene, gas, etc.
Newsflash:
- Essentially, we put our raw crude oil inside barrels, load them onto ships and byeee. We then ask other countries that have the refinery plants to please sell us their refined oil so we can use it in our country. You too, you can see it’s madness, right? Very good.
- Nigeria is the only OPEC country (according to the TPAP-M people, no be me talk am) that imports 90–95% of refined petroleum products that are used for daily consumption in the country.
- The current fuel scarcity issue started when contaminated petrol was imported into the country, knocking down people’s cars and generators. These litres of petrol were already distributed to several filling stations and then recalled to avoid causing more trouble. But the next batches of petrol were still on their way hence, the low level of supply.
- ECON 101: High demand for petrol, low supply of it = ??
If you didn’t get the above answer right, please leave my class. Thank you.
Russia-Ukraine War
As if our domestic chaos wasn’t enough, he-who-shall-not-be-named decided to start a war just two months into 2022. Is their battle with Covid not enough?
I mean, my short-sighted self couldn’t see the direct impact of the war all the way in Eastern Europe affecting Nigeria but alas…
The war decided to smack us from two major fronts. Oil — no surprise there. And then food insecurity. As per, I’m battling with long queues at the filling station and now, I can no longer eat bread in peace?
Let’s face the Oil aspect.
On February 24, Russia officially invaded Ukraine after weeks of the U.S raising that alarm and warning Russia not to. Russia is a big country and major producer of crude oil so when the invasion happened, knowing the sanctions awaiting it, oil markets and financial markets started reacting. The nation’s currency — Ruble — experienced a free fall. Stock markets closed in the red. And oil prices started climbing upwards.
Crude oil prices (the barrels of raw oil) started climbing upwards because traders expected that if Russian oil isn’t being accepted in the market (again, sanctions) or their supply somehow gets disrupted by the war, the number of oil available in the market will be affected. And as the law of demand and supply will have it, crude oil became more expensive.
Remember how we’re oil producers right? Well, that means as crude oil prices rise higher, climbing above $100 per barrel, Nigeria should be cashing out.
But as usual, everything is always upside down for us. Therefore, as crude oil becomes more expensive, refined petroleum products also follow the trend. Remember, Nigeria imports practically all its refined products — diesel, petrol, etc.
As you can imagine, we were transported from the frying pan directly into the fire. Diesel prices are not even smiling with anybody, from N450 to N600 straight, no bus stop.
Who uses petrol and diesel?
Literally everybody, including our ever-inefficient electricity companies — NEPA or whatever they call them. Every house, every business in every corner of Nigeria. In fact, domestic aircraft have refused to fly because diesel is expensive.
As the cost of generating electricity shoots up, the people transporting raw materials (e.g. cassava, wheat) are increasing their prices. The companies producing the bread and Elubo (yam flour) are also saying “can’t be me” and increasing their prices. The restaurant selling Amala refused to be caught slacking so price what? goes up! And good ol’ me that has been observing the chaos in the country went to buy Hot Dog roll and you’re calling that tiny piece of bread N450??
Wheat, Maize, Urea, etc.
Russia and Ukraine — the two main characters of the war are major exporters of wheat, maize, and other grains. Like the case of oil, prices also shot up and have kept the trajectory going. Nigeria currently produces only 1% of the 6 million metric tons of wheat we consume annually. The other millions we don’t produce are sourced majorly from the U.S, Canada, and Russia. Fertilizers and other agricultural materials are also major exports of Russia. Therefore, we can expect prices of wheat-based items like Bread, cake, etc to be hiked. I mean, someone can’t even eat birthday cake in peace again.
These price changes aren’t reflected immediately but as the war persists, scarcity arises and prices continue to rise, we can also expect inflation to follow the trend. And that’s when we’ll understand the rainbow of problems facing us in Nigeria.
I hope it wasn’t a long read as this was just my attempt at putting the rants in so many people’s heads into a coherent piece of writing.
If you read to this point, DM me for sweet, you deserve it! 💕
Thank youuu for reading and persevering my absence all this while. Till next time, God knows when. Byeee
