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  • Business - Economy
  • Updated: February 28, 2022

Russia, Ukraine Crisis And The Greater Implications For Nigeria's Fuel Situation

Russia, Ukraine Crisis And The Greater Implications For Nige

Since January 23, 2022, the country has been submerged in a needless fuel shortage crisis brought about by the high level of methanol in the gasoline imported. There are long queues of vehicles and people seeking, painfully, PMS to power their cars and generators.

With the situation lingering, questions with few acceptable answers have been provided.

Just this month alone, a lot of vehicles and machinery that depend on this toxic fuel have broken down.

The federal government had, in the early stages of this crisis, promised Nigerians that a short-term solution and a permanent long-term solution were in the pipeline.

Unfortunately, as days turn into weeks, a solution to this painful situation looks bleak and many people are asking questions that no one has answers to.

The nation's downstream regulator, the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), and the NNPC, had just last week promised an end to this debacle.

Going by information on the streets in the country, PMS sells for as much as N200 to N300 in some places in Lagos, Abuja, Bauchi, Enugu, Abakaliki and other places.

The cause of this is the current shortage of fuel supply, which is still unresolved.

In Abuja, the Nigerian National Petroleum Company (NNPC) said they were going to bring in a lot more premium motor spirit to help the country deal with fuel shortages.

We know that most marketers, especially depot owners who had paid for products since December of last year haven't received their consignments.

While the waiting looked to have subsided last week, the situation deteriorated on Friday, as many fuel stations remained closed and those that did open had large queues of cars waiting to purchase the product at the official price.

In Lagos, the majority of stations without lineups were run by individual marketers who sold the product for between N200 and N250 per litre.

Angry customers are worried about the Nigerian Midstream and Downstream Petroleum Regulatory Authority's lack of attention and silence when it comes to reining in certain marketers who had items but were selling them for more than the pump price, which is what they should be selling.

Many people in the value chain said yesterday that the state oil company's current plan for recovering costs after becoming a limited liability company could make things even worse.

Although the NNPC was expected to truck products to the majority of stations in city centers owned by the Major Oil Marketers Association of Nigeria (MOMAN), most depot owners now prefer to sell the products at their stations rather than supply the Independent Petroleum Marketers Association of Nigeria (IPMAN) in order to recover losses from bank loans and new challenges such as payment for products in dollars, which they claim they must source on the black market.

Breakdown In the Russian-Ukrainian relationship

Russia and Ukraine have been on loggerheads for some time now. Moldova, Estonia, Latvia, Lithuania, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan, Russia, Armenia, Azerbaijan, Georgia, and Ukraine were all part of the old Soviet federation.

Those years of the communist regime saw Moscow take control administratively, politically, and economically of those old countries.

These countries were backward, as clearly seen in the divide and economic space between West Germany and East Germany. West Germany, which was aligned with the West, was prosperous, politically free, and socially advanced, whereas East Germany was backward politically, economically, and full of sad tales of suicidal scenes, owing primarily to negative pressures instituted by Moscow's depressive government.

The divide ended once the late President Ronald Reagan of the USA and Mikhail Gorbachev of Russia agreed to a truce which saw the breaking of the war in Berlin.

However, under the leadership of old KGB informant Vladimir Putin, the country has reawakened the desire to reignite the old communist desire for political conquest and the spread of communist ideologies.

Russia's invasion of Ukraine began precisely in 2014, when its soldiers in armored vehicles entered Crimea unhindered and annexed it.

Apparently, for the past two weeks, tension between both countries has heightened, with Russia declaring a full-scale war on Ukraine.

Despite the Joe Biden presidency refusing to take a more definitive position against Russia, most European countries and companies have taken a more resounding position against the aggressor, to the point of withdrawing from trade deals and so many others.

The first consequence of this geopolitical tension is the rise of crude oil prices (London Brent and West Texas Intermediate hit record numbers).

London Brent rose to as high as $103/per barrel, while WTI rose to as high as $98/barrel.

Other precious metals to experience a jump in price are natural gas, coal, and gold.

What are the implications for Nigeria?

  • The rise in crude oil will automatically put more price pressure on the downstream and midstream oil players to review the retail price of PMS, AGO, and DPK. Attendant costs, such as landing costs, shipment costs, and other international administrative costs, will continue to put pressure on the federal government to either abandon its partial subsidy program or continue to support the price gap created by this price increase.
  • Despite the rise in revenue brought about by the rise in crude oil prices, most of the new cash received will be used to continue its poor management of the PMS subsidy programme. The effect is that the country will have missed the chance to grow its external revenue base to a record figure.
  • The increased revenue from crude oil sales will not be enough for the CBN to intervene effectively and efficiently in the FX market due primarily to importers sourcing for dollars in the black market.
  • Due to the ongoing crises in Europe, trade deals that should have helped increase the supply of PMS into the country have been affected as trade partner companies and countries struggle to not only understand the effect of these new challenges but adapt.
  • The country might be forced to outsource some of its trade deals to other countries such as Hong Kong and others that have the capacity to address this short-term crisis of fuel shortages.
  • As a long-term solution, crude oil modular refineries in the country will require extra-ordinary speed to deliver before the delivery timeline is exhausted. Analysts expect the Dangote refinery to kick off before the scheduled date.
  • The country's fuel shortage should continue following the refusal of major oil marketers to sell to some independent oil marketers. Therefore, we expect more queues at petrol stations owned by the likes of Ardova, Mobil, and others, with them still selling at the agreed pump price of N165/litre, while the few independent oil marketers who manage to get the product should sell between N165 and N500/litre, depending on the place and transportation cost.
  • The sourcing of dollars on the black markets by oil marketers has the potential to crash the naira much lower than anticipated as demand from these types of corporate entities has the capacity to cause a major shift against the naira. Some currency analysts forecast that the naira could hit as low as N605/USD in the black market within the next two weeks.
  • This situation also has the capacity to provide a window for money laundering and trans-border corruption. This is because money launderers will make it easy and cheap for oil companies to get dollars and help them move their stolen money through a legitimate way of paying for PMS.

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