As Ukraine Pushes Oil Prices Up, Nigeria Faces Fuel Scarcity

Nigeria may be reaping extra revenue since Ukraine’s crisis pushed oil prices above $100 a barrel, but it is facing fuel scarcity at home.

OPEC member Nigeria has little capacity to refine its own crude and relies heavily on fuel imports so higher oil prices mean more budget spending.

President Muhammadu Buhari says Africa’s top producer has a “great opportunity” with higher oil prices.

“It’s more revenue for the country, but it doesn’t get down to the common man,” said AbdelAzeez Oyefeso, an accountant from Lagos.

Oil sales account for nearly 90 percent of Nigeria’s export revenue. But soaring prices — the highest in ten years after the invasion — are a mixed blessing.

Nigeria also operates a byzantine system of fuel subsidies that costs the state billions of dollars to artificially keep fuel costs low.

In place since the 1970s, fuel subsidies are politically sensitive and Nigeria’s import reliance also leaves the domestic market open to sporadic fuel shortages.

Currently, a litre of gasoline costs an average of 165 naira (40 US cents). On the black market this week it was fetching between 350 to 500 naira.

Since last month, the government said a batch of adulterated fuel was removed from the market, causing a shortfall.

State-run Nigerian National Petroleum Corporation chairman Mele Kyari said measures were in place to get adequate supplies to depots.

“I am very sure that very soon we will see relief from this,” he said.

Nigeria approved a long-awaited new oil law last year that aims to improve operating conditions to bring in more foreign investment.

But some of Nigeria’s production is tied up in deals with refining companies for fuel and swaps for infrastructure projects so oil high prices are not the revenue boon they should be.

Today, most of Nigeria’s 1.4 million barrels per day oil output comes from off-shore “deep water” projects, where the government takes only 20 to 30 percent of revenue, said Bismarck Rewane, an economist at Financial Derivatives Co.

“The increase in price is not enough to compensate for the loss in production,” Rewane said. “Theoretically the picture looks great, but in reality it is more complicated.”

Nigeria’s finance minister last year suggested the costly fuel subsidy programme would end in June as urged by the World Bank and IMF.

But in January, ministers delayed the plan, saying the timing was problematic.

Less than a year from an election, ending subsidies could be costly as Nigerians see cheap fuel as one tangible they get from oil wealth.

“Nigeria, however, is in the uncanny position of being stuck in a subsidy arrangement that guarantees that high oil prices leads to an exponential rise in government expenditure,” said local risk analyst group SBM Intelligence.

“Momentary gains in the government’s coffers, therefore, might not make a big dent in the fiscal deficit.”

Sitting on an empty blue 10-litre jerrycan on the roadside, Ahmed said he came just to make cash to supplement his carpet business.

“This is just a hustle,” he said. “This is our oil, and it’s a way to make quick money.”