Ordinarily, reports of rising prices of crude oil in the international market should raise the hope of Nigeria for a better economic deal, both in safely implementing the 2025 federal budget, and in translating to improved welfare for the ordinary Nigerian. However, that hope evaporates in the face of the fluctuating character of the market and the huge corruption deeply embedded in the country’s oil sector. Government, led by President Bola Tinubu, must frontally address these nagging problems if it ever hopes to benefit from the global opportunities.

  A sustained Israel-Iran ceasefire means the major catalyst of $100-dollar crude is weaker today than it was last month. Yet, the $50 crude President Donald Trump had dreamed of may be completely off the table. The market may have also gone beyond $60 average bets of the last two months. First, the oil cartel has not demonstrated the capacity to deliver the oversupply some analysts feared could crater prices. Also, with the Chinese economy showing resilience, refineries are at a record capacity utilisation, and the U.S. inventories are falling, while demand, of course, is holding firm. The tension in the Middle East has not simmered, which means the market could see a remarkable supply cut and demand pressure in the near term.

   For petrol-dollar economies such as Nigeria, this is good news. It keeps hope alive – that the N41.8 trillion equity funding component of the ambitious 2025 N54.99 trillion budget, which will be 56 per cent oil funded, is no longer remotely out of this world. A higher oil price also means a more stable foreign exchange (FX) supply, for which the country needs to strengthen the naira and starve off imported inflation. Besides the external sector pass-through effect, a bullish oil market has a direct consequence for the internal sector, as many industries depend on flourishing petroleum businesses to survive.   

  Geopolitical conflicts are significant events in the oil market cycle. But war-driven price rallies are short-lived, historically. For instance, the famous 1973 Yom Kippur War and Oil Embargo, which saw oil prices quadrupling, only lasted about six months. The 1979 Iranian Revolution pushed up prices from less than $16 to about $40 between March 1979 and June 1980, only for the leg-up trend to collapse suddenly, with the price dipping to $12 thereafter.  The 1990 Gulf War almost doubled prices (from $18 to nearly $34) within four months, after which the momentum pivoted. There have been several other ancient or modern conflicts that changed, remarkably, the market outlook and contributed to the volatility that trading is known for.

  Such spikes, as we have known them, make countries richer, so wealthy that vanities and frivolities they could not dream of are at their beck and call. This possibility, essentially, is the making of the modern Middle East. The world has also seen how the breakdowns of the sudden market spikes also inflicted fiscal pains on national economies. In many cases, market collapses have been followed by recessions in oil-dependent economies, as in the case of Nigeria after the COVID-19 lull.

  The boom-and-bust cycles in the hydrocarbon business offer invaluable lessons for resource-rich countries. But only a small percentage of the affected countries benefit from such lessons. The rest rarely learn anything, and in many cases, conduct their affairs as if the boom would last in eternity. The current crisis in the Middle East, if not properly managed, could be a build-up to a major spike. The United States’ recent strikes on Iranian nuclear facilities showed how fast a re-escalation could trigger a major rally that could see Nigeria earn much more than its current expectation from oil sales.

   Sadly, the potential of a substantial windfall is being mismanaged. On one hand, general insecurity and oil theft have reduced the gains from crude deposits to almost a subsistent level. Even with the recent improvement, reports suggest the country loses about 200,000 barrels of crude per day to theft daily. Apart from the huge revenue loss arising from this, the crisis also slows final investment decisions (FIDs) of many operators and prospects, reduces capital inflow and triggers bouts of divestments from the sector as witnessed in the past few years.

  But in the most significant terms now, the leakage needs to be blocked to increase revenue gain from the potential price spike. This will require a total recalibration of the oil facility security architecture. The government, at this critical stage, needs to adopt a more inclusive approach that factors the peculiarities of oil-producing communities into the security system. But most importantly, a technology-intensive approach will reduce human interference and the tendency to compromise the system. Perhaps, this could reduce the cost of production, currently estimated at $40 per barrel, and remarkably push up the official earnings from crude.

  But to what end are higher earnings in an extremely opaque and corrupt system? Just some days ago, the country was shocked by the headlines of alleged unaccounted N210 trillion in the NNPC Limited’s eight-year financials. The disclosure rode on the back of the indictment of a former chieftain of the Corporation for $2.9 billion fraud. The allegation mimics a historical trend. The national oil company has not been fortunate to be led by a manager with a clean bill of moral record after their exit. Sadly, it is the same institution that is saddled with the responsibility of managing the country’s oil sales and is expected to declare additional revenue. If history continues, a windfall could only mean fatter bank accounts for individuals and less improvement in the country’s fiscal position.

  To think that higher oil prices, on their face value, will lead to a better fiscal condition for Nigeria is an illusion. And to celebrate higher prices in expectation of improved welfare is a distraction. The haemorrhage called corruption, which manifests in crude theft and mismanagement of the proceeds of sale, must be stopped first. Otherwise, another oil Bull Run will pass into oblivion like the previous ones. But most importantly, a sustainable solution to the pains of the short-lived oil boom is rethinking Nigeria’s dependence on hydrocarbons.