Oil and Gas Consultant, Olabode Sowunmi has explained that disruptions in the Middle East, which holds 50% of global crude, trigger worldwide shortages.
He said this in an interview with ARISE NEWS where he discussed global oil volatility and how prices are triggered by the ongoing tensions in the Middle East.
“Now, what has happened with the crisis in the Middle East is that about 50% of global crude oil deposits lie in the Middle East. About 40% of global trade in crude, one way or the other, passes through that strait. So, if you hinder the flow of 40% of any good or any service, there’s bound to be scarcity, and it’s that scarcity that people are relating or reacting to”, he explained.
Speaking further on Nigeria’s crude oil system, Sowunmi explained that local production and the Crude-for-Naira contracts help shield the country from global supply disruptions.
“Now, there is a bit of a difference with us because we actually produce. So because we produce, our supply chain does not necessarily pass through the Strait of Hormuz and the global complex that is there. And we understand that some, if not all, of our local refiners have some benefit in terms of the “Crude-for-Naira” deal. What I do know is that there is a contract that is in existence, and that contract speaks to “Crude-for-Naira,” and it was celebrated”, he said.
Sowunmi noted that the Crude-for-Naira arrangement is a direct contract between local refiners and the NNPC, with no middlemen, urging Nigerians to evaluate this based on facts.
“There are no middlemen. It is a contract between the refiners and Nigeria through the NNPC. There are no middlemen. So, there are other demands and all that, so it is incumbent upon us to interrogate what is in existence, the facts of the matter, and based on the facts of the matter, be able to analyze and let Nigerians decide for themselves”, he advised.
Highlighting uncertainty about the contract terms, he explained that because the Crude-for-Naira contract is not public, it’s unclear whether local refinery prices adjust with crude and exchange rate fluctuations or remain fixed.
“So, the issue is about what is the price of crude oil to the local refineries or those who supply us.
It is common knowledge that there is a crude-for-Naira deal. It’s not a public contract, so it’s not like a contract that people know what the details are. There is a school of thought that says that the contract is such that it reflects the current value of crude per time and the current value of Naira to the Dollar per time. But there is another school of thought that says that that contract was on a fixed amount, that irrespective of the fluctuations and volatility, that price will remain the same. In the absence of seeing that contract and knowing what is in the contract, we are not able to know which is the case”, he explained.
He added that in a free-market economy, prices are driven by supply and demand, and regulators intervene only to maintain balance and protect both consumers and investors.
“So, there is an economic situation. There are people who have invested and who have taken risks, which is where the Dangote and Co come in. And as a result, they must engage the forces of demand and supply. Where the government comes in and where the regulator comes in is that they kind of act like a big brother in the overall situation to ensure that the economy does not collapse and that the Nigerian—the man on the street—does not get a short end of the stick. So, doing that is a balancing act.
“The regulator is not on anybody’s side. He is on the interest of the players who have invested and who keep the economy going; he is also on the interest of the people. That is why they are not players. So, they must ensure that everything works well,” he said.
Sowunmi emphasised that while government planning is important, some global crisis are unavoidable, so building resilience is a realistic goal.
“In terms of what can be done and what should be done, I think it’s good to plan, scenario planning, future planning, all those things—they’re very important. But there are some things that you cannot plan for.
“A war is a force majeure. I mean, if you have businesses worth millions of dollars in Iran and the whole place has been bombed, what’s going to happen? You can’t mitigate those kinds of circumstances. So, there’s a limit to what planning can do. But however, we can make ourselves more resilient”, he advised.
Favour Odima
Follow us on:
