Is Abuja Ready for Tehran – P5+1 Deal?

Introduction

Given the fact that Nigeria’s accessible income is mostly derived from crude oil sales, in addition to last year’s price collapse it will be interesting to observe how focused and concerned the new administration is towards emerging developments. Despite new administration heavy-tailed leaning on the West, the biggest geopolitical game in town with potential impact on Nigeria is the highly anticipated nuclear deal between Tehran and P5+1. This article attempts to highlight short-term implications for Nigeria vis-a-vis crude oil production and sale considering that Iran is also a member of Oil Producing & Exporting Countries (OPEC).

OPEC Relevance?

OPEC is apparently facing a difficult time which is an expected for any organisation struggling midst global geopolitical reconfiguration of an extraordinary degree. This complex self-image was crystallised in last year’s miscalculated Saudi-Arabia led over-production which unleashed crude oil price collapse. For members like Nigeria it was not only a shocker but a trigger for strategic soul-searching on the role of crude oil in the economy and the relevance of OPEC membership. 

There was no serious statement or action from Abuja at the time and continuing which displays her role as that of mere follower. Nevertheless it must be asserted that Nigeria’s economic problem is not necessarily OPEC membership rather in a near-ontological inability to prudently manage incomes accrued from crude oil sales. It is on record that over the decades various administration have squandered almost trillions of Naira of crude oil income.

New Geopolitical Dances

Between last year and now so much has changed in the world. Saudi Arabia not only got a new king, her foreign policy turned aggressive with new military assertiveness currently unleashed on her small neighbour Yemen. Apparently this regressive imposition is costing Riyadh enormous resources including apparent investments towards the instability of Iraq & Syria respectively. Most importantly Riyadh has become diplomatically resourceful in displaying initiatives outside US influence. This is invested with finesse in the latest rapprochement with Moscow including deals worth billions of riyals covering various sectors such as nuclear development. It must acknowledged that Russia is the world biggest crude oil producer.

While Iranian crude oil production and sale is restricted by US imposed economic sanctions for nearly a decade, declined price and shrunk US market has created a buyer’s market hence China and India have become the biggest buyers and are even enticed with massive discounts for extended supply contracts. Similar patterns of market behaviour surrounds Nigeria’s reality and this could be more severe as Abuja lacks massive storage capacity for unsold production.

In addition North America and Europe from where the most technological firm come from are suffering as a result and this is accelerated by austerity economic doctrine. Increased cost of production and low profit margin have led to massive cancellation of production contracts, retrenchment of employees and decline in crude oil investment around the world including Nigeria.

Enter the Mullah

As United States reluctantly admits to her declining global power and influence which is grossly reflected in the sudden engagement with her erstwhile rivals (Cuba & Iran) and reaching deals with them, attention focused strongly on Tehran. The upheavels, instability and collapse of the Arab World of course at US instigation has confronted Washington DC with new unanticipated realities. With Russia and Beijing watching from a distance as the sub-region burns in the last 2 decades, the only country within the sub-region isolated from this geopolitical cauldron is Iran. 

Mere engagement by Washington DC simply acknowledged Tehran’s quintessential role as the region’s unquestionable top power. This make for uncomfortable calculus in Washington DC and other regional capitals as most of the countries are allied to the US as they are crude oil producers. Importantly they are also OPEC members and toe US line on energy policy.

These regional capitals are uncomfortable with Tehran – P5+1 negotiations which will surely end with elevating Tehran’s profile, reconfigure sub-region geopolitics and lift economic sanctions against Iran. One implication of this measure is the return of Iran into the global market, restoration of pre-sanction crude oil production levels and  reverberations on the market.

Nigeria’s Play

It is a matter of time for Iran to usher into a sanction-free economic status. The final phase of nuclear negotiations is dealing specifically with economic sanctions with Tehran pitching for immediate & comprehensive cancellation in a single swoop. Moscow and Beijing share similar view. It is obvious that United States which rushed for this form of economic warfare is emotionally attached to these economic sanctions. Tehran has made it clear that no deal will emerge without comprehensive lifting of sanctions. The ball is left in Washington DC court.

Once sanction is lifted Iran will apply for quota expansion in OPEC as an inevitable procedure. Reallocation of quotas must be considered and approved and at this point OPEC’s future as a viable geopolitical force will be decided. Nigeria’s quota may inevitably shrink and by a significant proportion. Reduced production means reduced sales. Another fundamental issue is that Iran revised-production entry into the market will affect prices probably negatively. This implies that between 6 – 12 months (late 2016) post-sanctions crude oil price may continue to hover below $50 per barrel with potential social impacts.

There is no public statement or reaction from Abuja so far on these anticipated developments. There is no indication these events are followed in the absence of a seating oil minister coupled with new administration focus on domestic security. In addition there remains uncertainty as to a determined course of foreign policy by the administration. There is a strong currency towards the West as observed in high-profile meetings and select international engagements.

One can only surmise that despite the relevance of the subject, Abuja will be constrained by generation-long misuse of processes, maladministration of resources and corruption in governance/management. Like a determined fighter, focusing attention in one area may be the best strategy and this area will surely not be on the subject at hand.