THE ONGOING GULF WAR AND ITS IMPACTS ON GLOBAL ENERGY AND ECONOMY: A CASE FOR EFFECTIVE RESOURCE GOVERNANCE IN NIGERIA

It is no longer news that the United States of America, alongside Israel, has surreptitiously but predictably embarked on a conflict with Iran. Many historians would argue that Donald Trump, the President of the United States, would struggle to achieve personal success during his two terms without exerting his political influence over Iran. However, this is not the central focus of our discourse; rather, the paramount issue at hand is the war’s repercussions on the global economy through fluctuations in energy demand and supply.

It is pertinent to note that while the primary actors in this conflict are the USA, Israel, and Iran, the nations indirectly affected include the member states of the Gulf Cooperation Council (GCC), which encompasses Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE. These GCC states are undeniably oil-rich nations, yet as allies of the United States, they have had to suffer the consequences of the ongoing war for political reasons. The ramifications on the GCC extend beyond energy trade, influencing various socio-economic activities. For instance, the Finalissima football match, originally scheduled to take place in Qatar between Argentina and Spain, featuring the Legendary Lionel Messi and the up-and-coming star, Lamine Yamal, was canceled due to the conflict. Similarly, the Formula 1 Bahrain and Saudi Arabian Grands Prix for 2026 were also scrapped as a result of the war.

In more contextual terms, the conflict has disrupted the supply of energy and is consequently responsible for the surge in global oil prices. Notably, the United States has not been exempt from this phenomenon, having experienced an approximate 16.6% increase in gasoline prices, making it the fourth highest globally, following Vietnam at 50%, Nigeria at 39.5%, and Australia at 17.2%.

The statistics regarding Nigeria are particularly striking, as the price of Premium Motor Spirit (PMS) currently fluctuates between N1,350 and N1,600. This raises a pertinent question: why has the Nigerian oil and gas industry been adversely affected by a conflict occurring thousands of miles away, especially considering Nigeria’s sovereignty over its territory and natural resources?

Undoubtedly, the reason other nations are grappling with the repercussions of the war is largely due to a shortage in petroleum supply. For instance, the United States relies on approximately 20 million barrels of oil per day that transit through the Strait of Hormuz, which has been effectively locked down since the onset of hostilities. By the fundamental principles of economics, when supply is curtailed, scarcity ensues, demand escalates, and prices inevitably rise.

Regarding Nigeria, the country is endowed with substantial reserves of crude oil, positioning it as a significant member of the Organization of the Petroleum Exporting Countries (OPEC) since 1971. With a production quota of 1.5 million barrels per day, one might question why there should be a shortage within Nigeria, particularly when it operates at least four government-owned refineries and houses the Dangote Refinery, described as Africa’s largest oil refinery and the world’s most extensive single-train facility, boasting a production capacity of 650,000 barrels per day.

The answer to the issue of supply shortages within the country can be traced back to inadequate resource governance. While many Nigerians might surmise that the presence of the Dangote Refinery would insulate the country’s energy market from the turmoil in the Middle East, the reality is that the Dangote Refinery operates as a private enterprise. In the context of the ongoing conflict, this presents a lucrative opportunity for Dangote to capitalize on the oil market, as the refinery seeks to supply products to nations unable to secure supplies due to the strain on the Strait of Hormuz. This increased demand for products from Dangote Refinery would naturally influence pricing.

While Dangote PLC does not bear a significant socio-political obligation to the Nigerian populace, given its non-communist, non-socialist, and non-altruistic nature, the Nigerian government must shoulder the responsibility of ensuring that its fundamental objectives and guiding principles of state policy are aligned with enhancing the well-being of its citizens. Hence, the imperative for effective resource governance is clear.

In light of the current state of government-owned refineries, which remain non-operational and are undergoing rehabilitation despite the pressing demand from Nigeria’s growing population, one can readily conclude that the failure of resource governance in relation to oil and gas supply is the primary driver behind the surge in PMS prices in Nigeria. With the government exhibiting inefficiencies in production, the nation finds itself vulnerable to the whims of international importation prices on one hand, while contending with the competitive local pricing established by Dangote Refineries as a private entity on the other.

In contrast, Brazil and India, both oil-producing nations, have reported a 0% increase in prices, while Russia, one of the few major oil producers in Europe, has experienced a mere 0.4% increase.

The disparity in the price increase of PMS between Nigeria and other oil-producing nations starkly reflects the inefficiencies in resource governance within Nigeria. Since the removal of the fuel subsidy, the government has failed to implement any meaningful policies or take decisive steps towards a sustainable solution to the price hikes, despite the pervasive negative impact on the nation’s microeconomic landscape.

As a short-term recommendation, if the government genuinely prioritizes the welfare of its citizens, it may consider negotiating an agreement with Dangote Refineries for an exchange program focused on refining crude oil specifically for the domestic market. By establishing a mutually beneficial agreement with a defined timeline and terms advantageous to the country, its citizens, and Dangote Refineries, the adverse impacts of the ongoing conflict could be mitigated.

Ajibola Bello, Esq.
Deputy Managing Partner, and Head of Corporate Department,