Oil-Driven Economy Hit Hard by COVID-19 Despite OPEC Intervention
With the COVID-19 pandemic wreaking havoc on global markets, since mid-March international oil prices have remained highly volatile, dropping to a 20-year record low price of USD 18 per barrel. The plunge followed a steep reduction in global demand and a price war between major oil producers, notably Russia and Saudi Arabia. At around USD 25–30 per barrel, Nigeria has one of the highest oil production costs in the world, while some countries such as Saudi Arabia can afford to produce at prices as low as USD 5 per barrel.
On 12 April 2020, OPEC announced a deal with other key producers to cut global supply by nearly 10% in an effort to stabilize the oil market. Timipre Sylva, Nigeria’s Minister of State for Petroleum Resources, welcomed the deal as a “historic intervention” that should help the country battle the effects of record-low crude oil prices.
Yet, as the oil market remains volatile, analysts question how much Nigeria will effectively benefit from OPEC’s deal. A recent prediction by the International Monetary Fund (IMF) indicates Nigeria heading towards its worst economic slowdown in 30 years with a 3.4% drop in GDP in 2020. With crude exports accounting for about two-thirds of government revenues, Africa’s largest oil producer is once again faced with the risks inherent to its dependency on oil. A similar scenario unfolded in 2016, when the country sank into a recession due to a long-term decline in oil prices from 2014 coupled with a sudden, dramatic fall in crude output. The latter had been caused by a resurgence of armed militancy in the Niger Delta region, home to the country’s onshore extraction activities.
Figure 2: GDP (billion USD)
* estimation made before the oil crash