Double trouble for Russian Rouble

SOME OPPORTUNITIES COME ONCE in a lifetime, in a generation or in centuries. Economies rise and wane depending on events, some of which originate internally in a nation or externally. The last time in contemporary history that a war involving two countries benefitted...

SOME OPPORTUNITIES COME ONCE in a lifetime, in a generation or in centuries. Economies rise and wane depending on events, some of which originate internally in a nation or externally. The last time in contemporary history that a war involving two countries benefitted Nigeria economically was in 1991, during the so-called “Operation Desert Storm.” The United States, under President George Walker Bush (Senior) invaded (yes, invaded) Iraq ostensibly to wrest Kuwait out of the hands of the totalitarian Saddam Hussein who had annexed Kuwait, a smaller country nearby. Preservation of sovereignty of a state was the excuse given to the world for that unilateral invasion. The world energy market entered a period of turmoil and some shuttle diplomacy was needed to shore up oil supply to, and stabilise oil price in, the US at the time.

Nigeria was still relevant to the US then as a major oil exporter, supplier and an ally. The short period of the “war” on Saddam’s Iraq benefitted Nigeria immensely in what was called oil windfall – revenues not ordinarily expected in budget projections – in prices and values as Nigeria had the opportunity of raising production enormously under the Organisation of Petroleum Exporting Countries (OPEC). The slide of Nigeria from regional pre-eminence in the global oil market was gradual but also appears irreversible as many competing factors came into play. Nigeria, with years of internal governance mechanisms that were not futuristic or outward looking, began to lose grip of regional leadership in the oil market. Remarkably, about a decade after the US Operation Desert Storm helped push up oil prices which benefitted Nigeria, a war-torn Angola began to stabilise. Angola began to grow in oil production capacity, becoming a stiff competitor to Nigeria in the petroleum markets. That did not seem to matter to Nigeria.

Negotiations between warring MPLA and UNITA in 2002 following the brutal exit of Jonas Savimbi signalled an end to the 27 years of fighting, paving way for a peace agreement in the Southern Africa nation. Angola thus easily became the second largest oil producing country in Africa at 64.5 million tonnes, after Nigeria with 87 million tonnes by 2020 records. While the oil honeymoon lasted, the disposition of General Ibrahim Babangida, a military president obsessed with self-perpetuation in office, put Nigeria in an awkward situation. What happened to the “oil windfall” that accrued to Nigeria during

Ibrahim Babangida’s time as president? It was known, however, that the maximum ruler then, began to embark on grandiose and white elephant projects many of which were self-serving or designed to fail from the beginning. Military and paramilitary officers of ranks from the equivalent of army captain were “gifted” brand new cars, essentially the reigning brands then (Peugeot mostly, and Volkswagen) as largesse from a benevolent president, all from excess oil proceeds. Then came the “a little to the right and a little to the left” imposed democracy in which Babangida was the sole umpire.

As many local governments as there were in Nigeria in 1992 each had two similarly designed building complexes for the two political parties. Some of them later became hideouts for criminals, some were burnt by wildfires but some were converted to local government buildings. And (about N60 billion when the dollar exchanged for about N22 in banks and nearly twice in black market) what could be equivalent to trillions of today’s naira was spent on a project that was designed to end in futility. Results of an election widely acclaimed free and fair were discredited and annulled on June 23, 1993 and the victory of the presidential candidate was thrown overboard. After that, Nigeria has not been able to assert much influence in OPEC despite the prominent representations by Nigerians.

The modern Dubai that Nigerian politicians are now fond of flocking into like sheep was just being constructed in that period of the early 1990s. The ancient Dubai is not significantly different from old Kano City. While Dubai diversified its economic base from oil and gas into sports, aviation, maritime and seaports, financial centre, tourism and hospitality, all those sectors in Nigeria went comatose and became ineffectual, after gulping fortunes of improperly managed funds under poor leadership. The Nigerian Tourism Development Commission (NTDC) was upgraded to full-fledged ministry, yet it became mere bureaucracy with no visible results. Nigeria’s manufacturing industry collapsed for lack of competitiveness in the global and regional markets. Abuja that became the modern city and seat of government since 1991 when Babangida hurriedly moved there from Lagos became an insecure place and a distorted image of the original plan.

The dynamics that favoured Nigeria in 1991 were not always there afterwards as the oligopolistic power of OPEC was affected by the withdrawals of some countries to become independent exporters in subsequent years, thereby operating outside OPEC. Russia has been an influential independent exporter and so became these former OPEC member countries. In December 1992, Ecuador suspended its OPEC membership, but rejoined in October 2007, later to withdraw again effective January 1, 2020. Indonesia, too, suspended its membership in January 2009, reactivated it again in January 2016, but decided to suspend its membership once more at the 171st Meeting of the OPEC Conference on 30 November 2016. Gabon terminated its membership in January 1995. However, it rejoined the Organisation in July 2016. Qatar terminated its membership on January 1, 2019. The flip-flops have not only affected member countries in terms of revenues (since their annual outputs are centrally determined) but have also affected the pricing of petroleum in some significant ways.

Russia is creating another opportunity for oil windfalls again by its present onslaught against Ukraine. This time, however, the dynamics are very different. There is already a sea change in the world energy market and some re-alignments have taken place, plus the structural changes brought about by considerations for the environmentally friendly alternatives. Vladimir Putin may be making some wrong permutations on how the energy politics will play to Russia’s advantage, especially by some harsh economic conditions he has just rolled out, one of which is his stipulation that buyers of Russia’s oil and gas (especially those he termed “unfriendly nations”) should pay in Rouble (Russian currency) or have their contracts cancelled.

Since the time of Josef Stalin, totalitarianism in Soviet Russia has always been at loggerheads with liberal economists or economic realists. Nikolai Kondratieff was shot on the orders of Stalin because the economic theories of Kondratieff on collectivisation of agriculture, which later proved to be true, sounded unpleasant to Stalin. Kondratieff thus became a martyr for his convictions and postulations. Today, Kondratieff’s long wave theory is one of the resilient theories in economic policy circles. Another Stalin incarnate is here in the form of Putin who is obviously oblivious, ignorant and intolerant of frank economic counselling. His recent adventures are proving disastrous. Well, this may present another windfall for Nigeria in oil sales. The only problem now is that traditional importers have found certain alternatives and may largely ignore Nigeria.

The US - under Donald Trump’s regime - became oil self-sufficient, until Joe Biden came and cancelled the Keystone XL pipeline and stopped further oil prospecting on federal fields. Reviewing and renewing those projects now seem likely with the harsh impacts the measures on Russia’s oil is having on the US domestic markets. It is likely too that Joe Biden and his Democratic party may bear some political costs for such a hasty decision that had a tinge of spite. Dwellers in Texas would recall the unusual freezing cold last year that defied wind energy and solar energy sources, bringing the need for heating with gas. And now, the sudden rise in pump price of fuel seems to have pushed Biden to the wall to release one million barrels of oil, apparently under intense political and economic pressure. The multidimensional natures of world events call for care, especially in domestic policies and politics. This might significantly alter the balance at the Congress against the Democrats in November, and ultimately return the presidency to the Republicans in 2024.

With European countries within the EU Bloc rising up in unison in response to Russia’s Putin, a change may begin in the alliance for oil and gas supply that may sideline Russia. It may seem a bitter pill, but the ideological stance of the EU points to the readiness to swallow such a pill nonetheless. The Rouble that Russia thinks of shoring up with oil and gas sales may stall or even depreciate further. Doors of opportunity are open to Nigeria, but the country must not sit back and wait for the ripe fruits to fall or for buyers to come since there are many alternatives out there in terms of supply chain, ease of proximity, price and volume. The rise in emphasis on alternative sources of energy, particularly renewables, in the EU and North America is a good reason to believe that Russia may be making a wrong bet on its oil and gas this time. COP 26 meeting in Glasgow in November tried hard to achieve a consensus on phasing out of coal, but ended up with “phasing down,” meaning a reduction in its use. Russia will be one of those at great disadvantage on this too as Russia is a major exporter of coal.

Now, may Nigeria modify its diplomacy to pave way for another oil windfall. The country is in deep red in debts and loans that can permanently shackle it. But it can also use oil and gas to negotiate Nigeria’s way out of debt as well as shore up its revenues in the short term. The difference this time, however, is that the rise in oil prices goes along with inflation, a terrible development. Another opportunity is to breathe life (not pump money) into the ministry of solid mineral resources and explore ways of getting some of the metals in Nigeria’s subsoil into the global value chain and supply chain in the world’s quest for metals useful for driving renewable energy to reduce dependence on oil and gas powered technologies. Herein lies a huge prospect for Nigeria, which may either be taken advantage of or allowed to slip out of fingers like sands slipping through the fingers of small children. business a.m. commits to publishing a diversity of views, opinions and comments. It, therefore, welcomes your reaction to this and any of our articles via email: comment@businessamlive.com