• Thursday, February 29, 2024
businessday logo

BusinessDay

Nigeria and the lift of sanctions on Iran

businessday-icon

There is no doubt that Nigeria would be adversely affected if the sanctions on Iran are lifted. This is why we urge the Nigerian government to act fast to avert further crisis in the economy as Iran is set to pump over 2 million barrels of crude daily into the already over-supplied world crude oil market as soon as it ramps up its production. This would further bring down the price of crude oil. Iran is currently exporting around 1 million b/d of crude, while Nigeria is struggling to produce about 1.7million barrels per day.

Iran produces sweet crude which is of the same grade with Bonny light that Nigeria produces. Major refineries in the world use the crude for blending with other products to produce refined products. Because of this, Nigeria must be ready to face the competition that Iran is going to pose by  finding other markets and design very strategic methods to make her product more attractive to the international market.

Though the lifting  of the sanctions on Iran may not  happen until December, it would be  better  for  the  country to be  pro-active and  mitigate the  effect of such  decision on Nigeria’s oil revenues. Already the drastic drop in the price of crude oil has impacted negatively on the revenue earning of the Federal Government.  A situation already destabilizing  the economy of various states as most of them are already finding  it  difficult to pay the salaries of their workers.

Iranian crude has historically been attractive in the Asian market, given the ability of refineries there to process it. While Iranian oil was offline, its supplies to Asian refiners were replaced by a mix of crude from Nigeria, Russia, the UAE, Iraq and Venezuela. So Iran may have to offer some massive discounts on its crude to lure back Asian buyers.

Global oil supplies are plentiful, so retaining or gaining market share, will depend as much on factors outside producing countries’ own control as it will depend on strategic actions by producers.

Iran sells most of its crude exports to four Asian countries: China, India, Japan and South Korea. With Turkey and Taiwan, these countries were buying Iranian oil under waivers from US financial sanctions granted in return for reduced oil purchases from Iran.

It could take Iran until end-2017 to lift its production by 600,000 barrels per day, despite the agreement by the world’s major powers deal to lift sanctions over the country’s nuclear activity. The deal is pending approval from the US Congress and the Iranian Majles (parliament), and Iran enacting the requested measures. Since sanctions started in 2010, Iran’s crude oil exports have halved to 1.1 million barrels per day

For Iran, there is potential for very large-scale investment with three quarters of her oil and gas reserves still to be produced. The country is set to unveil new upstream fiscal terms late this year and various NOCs and IOCs, including Shell, Total and Eni, are thought to be interested. This is unlike Nigeria  where invested has been stalled  in the   six  to   seven  years because  of  the non passage  of the  Petroleum Industry Bill (PIB).

If  this  country  must  withstand  the competition  from Iran and  international  conspiracy  from  the   International  oil  companies (IOCs) , it is ether the bill is passed   or the oil companies are allowed  to operate  with the fiscal  terms they were using before  the issue  of PIB  came to the fore. The economy should also be effectively diversified so that the country would no longer depend on just one source of foreign exchange revenue.