Despite the rise of oil price around the globe, Nigerian government still pays subsidy as citizens pay more for petrol
‘Sometimes, I wish I did not know how the economy works. This way, even if the oil price rose to $100 or dropped to $10, it would still be a regular day and wouldn’t mean much to me.’
I met someone like this about two weeks ago when the Nigerian government attempted to wriggle free from the planned removal of the subsidy on petrol. In my attempt to explain what the hullabaloo was, I drew an analogy about a father who prefers a Coldstone ice cream for his children every day and continues to do so even when his income could no longer support it and he even struggled to pay school fees.
I asked him to imagine that the petrol subsidy is the Nigerian government’s cup of ice cream to every Nigerian daily and that the government continued to pay for this ice cream at the expense of everything else that was really important to the nation.
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While petrol could not be compared to something as mundane as ice cream, it was as if on cue when the university lecturers decided to proceed on a warning strike the following week just as Buhari earmarked fresh N2.5 trillion for subsidy in the 2022 supplementary budget. The university teachers are asking for N880 billion.
Today, we woke up to the news of the escalating tension in Ukraine as Russia eventually decided to invade the country. The market has responded accordingly and the oil price has risen above $100 for the first time since 2014. This is good news for any oil-producing country, but not for Nigeria.
First, Nigeria’s oil production is at its lowest in five years at 1.4 million barrels per day. And no thanks to OPEC’s production quota, it could not even go beyond 2 million barrels even if it had the capacity to do so.
But the final nail on the coffin is the petrol subsidy. The increase in oil price means the landing cost of petrol to Nigeria will nearly double, leading to a higher cost of differentials that the Nigerian government must now pay for the subsidy.
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So, for the first time, there will be no need to celebrate an increase in oil price. Instead, we dread it. A drop in price will also hurt as much.