Nigeria unlikely to benefit from Saudi oil price shock

On 14 September, drones sabotaged two Saudi Aramco facilities in eastern Saudi Arabia. While Houthi rebels – backed by the Iranian government – have claimed responsibility for the attack, there are indications that this might have been a more sophisticated operation than either side is currently willing to admit.

Global condemnation

• Already, US president Donald Trump has said there will be increased sanctions for Tehran, which is already reeling under the effects of the withdrawal of the nuclear deal sanctioned under Barack Obama, Trump’s immediate predecessor.
• Iran’s president and foreign minister are yet to be issued American visas to attend next week’s UN General Assembly in New York.

The UN Security Council has dispatched a team of experts to begin an investigation, while also condemning the attack and the worsening situation in the Middle East.

• “I believe that we absolutely need to stop this kind of escalation and that we absolutely need to create the conditions to avoid the major confrontation in the Gulf that would have, as we have seen by the immediate impact on oil markets,” UN secretary-general Antonio Guterres told a press conference at the UN headquarters in New York on Wednesday.

Nigeria’s Muhammadu Buhari has joined ranks with other world leaders condemning the attacks.

• “We in Nigeria once experienced attacks on our own oil facilities. Those who sought, by doing so, to undermine governments of the day did not succeed then – nor at any time,” the president said.

Muted impact for Nigeria

The attacks have caused what is being described as the largest oil disruption in world history, with reports estimating that the global market could be starved off as much as 5.7 million barrels of crude oil per day.

• Saudi Arabia supplies 10% of the world’s oil needs and has revived its capacity at the plants to 41% just days after, producing some 2 million barrels a day.
• But it is also currently importing diesel and jet fuel to meet domestic energy needs and is now the world’s third’s largest oil producer after the US and Russia.

On the surface, this could prove to be advantageous for Nigeria, which is Africa’s largest oil producer and a member of the Organisation of Petroleum Exporting Countries (OPEC).

• Currently, Nigeria exports approximately 1.8 million barrels daily.
• Oil still accounts for 85% of Nigeria’s forex earnings.

But domestic problems make it unlikely to make windfall profits, as it did, for example, in the Gulf War of 1991.

• “The resilience of Boko Haram and assorted insurgents in the Niger Delta mean that Nigeria is not at all well placed to step into any supply gap created by a Middle East war”, says Lagos-based SBM Intelligence.

Rising prices might help, however. They would enable Abuja to counter some of its losses from the sabotage of oil pipelines and illegal small-scale refineries rising up across the Delta that have removed up to 10% of Nigeria’s daily production.

•  There is no slack in Nigeria’s current production levels, however, which are good to the point of over-production. In talks with Saudi Arabia the country had agreed to cut its production.

Bottom line: With Iran threatening “All out war” if the Saudis attack, oil supply threats hinge on geopolitical rather than production risks.