Nigeria’s revenue projections may be facing a fresh threat as the trade war between the United States and China gets fiercer. The intensifying trade war could see oil price sink to as low $30, Bank of America Merrill Lynch warned.
In its 2019 budget, Nigeria projected oil to sell at an average price of $60 and national production was projected to grow to 2.3 million barrels. The proposed budget estimates N6.97 trillion revenue for the 2019 fiscal year. The oil sector is expected to contribute around N3.73 trillion while N710 billion will come from the proceeds of government equity in joint ventures.
But the Bank of America Merill Lynch, an American multinational investment bank, noted that a further deterioration in relations between the U.S and China could set off a chain of events that would push oil down more than 50% to as low as $30.
“while we retain our $60 a barrel Brent forecast for next year, we admit that a Chinese decision to reinitiate Iran crude purchases could send off price into a tallspin”, a Bank of America Merrill Lynch Global research report said, warning that prices could sink by as much as $20 – 30 a barrel in that scenario.
The U.S and China, two world superpowers, account for about 34% of the global crude oil. The commodity also accounts for 2/3 of Nigeria’s revenue and nearly all of foreign exchange earnings.
China, the single largest buyer of Iranian crude oil before the U.S sanctions hit the Islamic Republican’s oil exports, continues to import oil from Iran despite the zero exports maximum pressure campaign for the United States.
When oil prices found a floor around $40 in the first quarter of 2016, the Nigerian economy slid into a recession and the Central Bank of Nigeria (CBN) began restricting scarce forex for what it considers important items and began to artificially prop the naira to maintain exchange rate stability.
Business Day, 6 August 2019
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