Nigeria has begun to see a significant increase in oil revenues as global crude prices continue to rise in response to escalating tensions between Israel and Iran.
Brent crude futures surged by more than 3 per cent yesterday, with prices rising by $2.26, or 3.07 per cent, to settle at $75.82 per barrel. Simultaneously, U.S. West Texas Intermediate (WTI) crude soared by $2.38, or 3.42 per cent, to trade at $72.22 per barrel, according to Reuters.
Both benchmarks had previously climbed by over 5 per cent earlier in the week before closing around 2.5 per cent higher on Tuesday. This consistent upward trend in global oil prices is benefiting Nigeria, as the country’s increasing crude oil output to the Organisation of the Petroleum Exporting Countries (OPEC) continues to translate into more revenue for the government.
The Monthly Oil Market Report from OPEC for August shows that Nigeria’s crude oil production, based on direct communication, rose from 1.307 million barrels per day (mbpd) in July to 1.352mbpd in August an increase of 45,000 barrels per day. This marks a steady rise in output, with Nigeria producing 1.307mbpd in July, 1.276mbpd in June, and 1.251mbpd in May. Other months of 2024 also reflect consistent outputs: 1.281mbpd in April, 1.231mbpd in March, and 1.322mbpd in both January and February.
The geopolitical tension driving this price spike stems from the conflict between Israel and Iran. Israel, backed by the United States, has vowed to retaliate after Iran launched more than 180 ballistic missiles at Israeli targets. In response, Israel has ordered additional troops into Lebanon to combat Hezbollah, a militant group supported by Iran. Iran has warned that any Israeli retaliation would trigger widespread destruction.
Despite growing international appeals for de-escalation, tensions in the region remain high. Tamas Varga, an oil broker with PVM, warned that retaliation by Israel or the U.S. could result in significant damage to Iran’s oil infrastructure. “Iran’s or its allies’ retaliation could target Saudi oil facilities, similar to the 2019 attack, or lead to the closure of the Strait of Hormuz. Any of these events would send oil prices skyrocketing,” Varga said.
ANZ analysts also highlighted that global oil output reached a six-year high of 3.7 million barrels per day in August, further underlining the volatility in the market. Capital Economics, in a note, cautioned about the potential fallout from an escalation of the Israel-Iran conflict. “A major escalation involving Iran risks drawing the U.S. into the conflict. While Iran accounts for about 4 per cent of global oil production, the critical question will be whether Saudi Arabia steps in to increase output if Iranian oil supplies are disrupted,” the note stated.
Meanwhile, the 56th meeting of OPEC+ Joint Ministerial Monitoring Committee, held yesterday, reviewed crude oil production data for July and August 2024, along with current market conditions. The ongoing uncertainty in the Middle East and its potential impact on the global oil supply remains a key point of concern for the group.
As oil prices continue to rise, Nigeria stands to benefit from increased revenues, bolstered by higher crude output. However, the broader impact of geopolitical tensions on the global oil market remains uncertain, with analysts warning that further escalation could lead to even more volatility in prices.
