On Saturday, Iran’s Foreign Minister Javad Zarif told Iranians enthusiastically that international sanctions against the Islamic republic was to be removed. “Today is a good day for the Iranian people as sanctions will be lifted today,” Zarif was quoted by Iran’s ISNA agency to have said. But while Iranians rejoice at the lifting of sanctions, Africa’s top oil producers will struggle under the effect more oil from Iran could have on the already low prices.
Sanctions over its nuclear programme have cost Iran more than more than $160 billion in oil revenue since 2012 alone. But with the global nuclear watchdog, the International Atomic Energy Agency (IAEA), certifying that the country has fulfilled its commitments under the nuclear deal, Iran can resume selling its oil on international markets and can now use the global financial system for trade. Iran has the fourth largest oil reserves in the world and output could grow to 5.4 million barrels per day by 2040. The lifting of the sanctions have added up to 1 million barrels a day of new oil exports to the market.
Although low prices may discourage investments in the short-term, there is no doubt the addition of Iran’s oil to the already flooded global market will discourage price recovery. With the recent happenings in the global oil market, $20 oil seems very likely. Oil prices have dropped below $28 per barrel for the first time since 2003.
Nigeria, Africa’s largest economy depends on oil to fund its 2016 budget which the parliament is expected to debate this week. The commodity accounts for over 80 percent of government revenue and 95 percent of foreign exchange earnings.
The current prices may be the reason for a reported request for the withdrawal of the budget from the parliament by Nigeria’s President Muhammadu Buhari, especially with the budget predicated on $38 per barrel oil.
“The Senate received the letter on Saturday but it does not specify what is to be corrected,” Reuters quoted a source at the upper house of parliament to have said.
The president’s senior special assistant on National Assembly matters, on Sunday also issued a statement confirming that a message had been sent. “Mr President has sent a communication to the National Assembly on the 2016 Budget. The content is as will be read on the floor in plenary.” The parliament seats on Tuesday.
Apart from depreciating revenues, foreign exchange reserves are dwindling with several small businesses in the country already affected by restrictions aimed at holding the naira’s value. The naira fell to 305 to a dollar last week while the central bank maintained the official exchange rate at N198 per dollar. Shares also recorded their biggest fall in almost a decade.
According to the 2015 World Energy Outlook, the prospect of oil prices remaining low for an extended period cannot be ruled out.
“In the Low Oil Price Scenario, a new oil market equilibrium emerges at prices in a $50-60/bbl range that last until well into the 2020s before edging higher to $85/bbl in 2040. Key assumptions to bring this scenario about are: sluggish near-term economic growth; a stable Middle East in which key producers look to increase their share of the market; and resilient performance from key non-OPEC producers, particularly US tight oil.”
The Nigerian government has shown its commitment to plugging loopholes and fighting corruption but what many observers will be looking to see is how the country manages an extended period of low oil prices and diversify its economy to ensure a healthy future even without oil receipts.