logo-loader

The oil crisis is a national crisis for latest victims Nigeria and Norway

Last updated: 14:53 31 Aug 2016 EDT, First published: 09:53 31 Aug 2016 EDT

shutterstock_366628469

The depressed state of oil prices isn’t only afflicting hundreds of oil companies around the world.

It is also having an adverse impact on oil exporting nations, as well as the tax receipts their governments depend upon, and in the case of one country facing insurrection, power outages which impact on other parts of the economy still limping.

It may be too early to see a stemming of Middle Eastern customers to European designer brands but the continued risk that oil prices remain around $40 a barrel or less will eventually cause everyone to re-price all manner of activities.

On Wednesday, two economies presented a wake-up call to the world’s oil producers when OPEC member Nigeria declared it was in recession. Norway, meanwhile, reported second quarter growth at a standstill – and in a worse shape than the UK following scaled back forecasts for its Gross Domestic Product in the wake of the June 23 Brexit vote to quit the European Union.

The US oil benchmark, West Texas Intermediate, was at under $45 a barrel on Wednesday. Oil has recovered from February's low of just over $26 per barrel but the current price is still less than half what producers were getting just two years ago.

Nigeria's second quarter GDP fell by more than 2% compared to last year, after slipping by 0.4% in the first quarter. Two successive quarterly declines meets the definition of an economy in recession.

Nigeria isn't only hit by low oil prices. Its oil output has also fallen sharply because of a series of rebel attacks on infrastructure. That in turn has impacted on manufacturing and retail sectors which endure chronic power outages.

If this was a one-month aberration it would be a walk in the park. But instead it is turning into a walk on the Ark.

The slump in oil prices has drained Nigeria's foreign currency reserves. To stem the outflow of cash from the country, the government introduced strict restrictions on importing goods that it said could be produced locally. But that decision has also reduced the flow of raw materials to the country's manufacturers.

Norway may be a wealthier nation, without the risk of insurrection, and toying with the spoils of its indemnity, the sovereign wealth fund.

It is precisely for crises that the fund was set up decades back, and unlike the UK, the benefits of its oil output have been carefully stowed away in the fund to help in an hour of darkness.

Norway's offshore oil, gas and shipping activity shrank by 1.4% in the quarter, while mainland GDP grew just 0.4%.

The government has been forced, for the first time, to tap the nation's huge sovereign wealth fund. Norway's central bank said the country might be forced to withdraw more than $9bn from the $888bn fund in 2016 to make up for the collapse in oil revenue.

The galling reality is, that the fund was supposed to cosset the economy from external risks to the economy. In a sense, that is what the global oil glut is all about. On the other hand, it is ironic that the very source of funding is the cause to raid the fund now. And the other issue is, if we continue to see low oil prices for years to come, how long can Nigeria stave off an escalating crisis and Norway rely on its (at present) huge fund?

Ramp Metals Launches Drilling Program in Pursuit of High-Grade Nickel in...

Ramp Metals CEO Jordan Black joined Steve Darling from Proactive to introduce the company to the public domain and share exciting developments in the mining industry. With a background as a geotechnical engineer and experience in venture capital, including a notable role in taking GoldSpot...

36 minutes ago