Nigerian President Goodluck Jonathan announced over the
weekend that the government would partially reinstate fuel subsidies, prompting
Nigerian labor unions to suspend a strike that threatened to halt Nigerian oil
production, the fifth largest source of American oil imports. The strike began
on January 9 after the government ended its $8 billion fuel subsidy program on
January 1, contributing to a doubling in fuel prices – from about NGN65 ($.39) to
NGN141 ($.87) per liter. The government had hoped to use the savings from the
fuel subsidies to invest in infrastructure, including oil refining capacity that
would enable the country to curb its dependence on importing refined oil
products. Instead, the termination of the subsidies triggered massive public
outcry that fueled protests and paralyzed the country.
President Jonathan said that under the partial
reinstatement, fuel prices would be capped at about
NGN 97 ($.60) per liter. Although Nigerian labor unions agreed to suspend
their nation-wide strike, some
reports note that the trade unions have not agreed to the new capped fuel
prices, which may suggest only a fleeting agreement between the government and
the unions. Energy analysts will remain watchful of developments in Nigeria,
which could contribute to shocks in the global oil market. Indeed, while it is
unclear how much oil production could be affected by future strikes given
that most of the production process is automated, even minor disruptions
could affect global oil prices by undermining confidence in the oil market,
especially if tensions in the Persian Gulf worsen.
Nevertheless, the Nigerian government seems to have bought time,
helping bring a modicum of stability to Africa’s largest oil producer, which exports
than 2 million barrels of crude oil a day and provides 11 percent
of American oil imports. In the long term, however, analysts will need to
keep a close eye on Nigeria, especially as other developments in the Strait of
Hormuz and other sensitive regions that affect global oil prices unfold.
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