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Russian invasion: Petrol smuggling to weigh on Nigeria’s economy

Harder times await Nigerians as a fallout of the Russian invasion of Ukraine. The cost of energy, food and others, already high, will hit the roof in the coming days, experts have predicted. In an article made available to our New York correspondent, the Chief Executive Officer, Centre for Promotion of Private Enterprises, Dr Muda Yusuf, detailed the impact of the war on the domestic economy currently and in future. Yusuf expressed concerns about the impact of a prolonged war between Russia and Ukraine, saying it would not be good for Nigerian economy.

The reason, according to him, is because Nigeria relies a lot on products from these two waring nations. In the article titled: The Russian Invasion of Ukraine, Implications for the Domestic Economy, Yusuf foresaw escalation in fuel prices, mounting petrol import and subsidy bill and the aggravation of petrol smuggling. “There are also significant macroeconomic outcomes, which include heightened fiscal deficit, growing debt levels, spike in debt service payments, money supply growth, exchange rate depreciation and more intense inflationary pressures,” he said. He added that the cost of flour, price of bread and other confectioneries may also take a hit.

“The summary is that if the conflict is protracted, these would be the downside risks to the Nigerian economy.” Explaining further, the CPPE chief noted that Russia was the largest producer of oil globally, producing 10 million barrels of oil per day, adding, “There is a good chance that the conflict in the region would disrupt oil supplies, reduce output and trigger higher prices. “Already, oil price is above $100 and the impact on energy prices is already being felt around the world.”

The article read in part: “In Nigeria, the deregulated components of petroleum products would witness sharp increases. These include diesel, aviation fuel and kerosene. Gas would suffer the same fate. “The escalation of these costs obviously has serious inflationary implications across sectors.

The geopolitical tension of the recent weeks had bolstered energy prices even before the current onslaught by Russia. “The situation may get worse if the conflict escalates. This would affect cost of production, profit margins, purchasing power and may further worsen the poverty situation.” Talking about fuel subsidy, the article noted: “We will see an upsurge in petrol import and subsidy bill in coming months as the landing cost of petrol increases on the back of the rise in crude oil price. Regrettably, we remain a major importer of petroleum products and typically when oil prices increase, petrol import bill and subsidy payment also increase.

“Only recently, NNPC made a request of N3trillion for petrol subsidy. With current turn of events, the subsidy bill would even be higher, creating serious fiscal challenge for government at all levels. These of course have serious implications for the budget and government finances.” CPPE predicted a rise in the scale of petroleum products smuggling owing to the impact of the crude oil price hike on relative prices. It stated: “The price differential between the cost of petrol in Nigeria [which is heavily subsidized] and the cost of petroleum in other countries in the sub region would be further widened, fueling more petrol smuggling. “Therefore, the current domestic petrol consumption estimated at 60 million litres per day is likely to further jump as the current developments provide even greater incentives for smuggling.

“That will put further pressure on the Nigerian National Petroleum Corporation for petroleum products supply for domestic consumption. This may perpetuate the current scarcity and fuel queues beyond initial expectations.” Russia began a full-scale invasion of Ukraine on 24 February 2022 and in the attack that has seen loss of lives and destruction, more than 1.2 million people have fled Ukraine as of Saturday, according to Aljazera sources. In Nigeria, already the increase in price of fuel has taken transportation cost to the roof. “Today, a trip by bus from Berger to Mile 2, a distance of less than 35 kilometers in Lagos metropolis cost N1,500,” social commentator, O’seun Ogunseitan, noted in a Facebook update on Saturday.

Russia accepted a temporary ceasefire on Friday but by Saturday, the defense ministry was quoted by the RIA as saying that Russian troops were continuing a broad offensive in Ukraine. The 10 day offensive has also seen evacuation of about three batches of Nigerians from Ukraine and the Federal Government declaring that students who had fled from Ukraine may have to complete their studies in Poland and other neighbouring countries.

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