Barclays Plc energy analyst Miswin Mahesh sees a “huge risk” of oil production in Nigeria being disrupted by political instability arising from elections scheduled for March 28.
The vote is set to be the most closely contested since the end of military rule in 1999. President Goodluck Jonathan’s People’s Democratic Party and former military ruler Muhammadu Buhari’s All Progressives Congress are the leading contenders — each won 42 percent support in a survey of 2,400 adults polled by Afrobarometer in December in 33 of the nation’s 36 states and the federal capital territory.
“We are not sure how it will play out on the political front,” Mahesh, based in London, said in a March 6 interview in Cape Town. “Nigeria will do whatever it takes to maintain its production. The risks are still there. There is a genuine risk that we might see some disruptions.”
Nigeria’s daily output of about 2 million barrels of oil makes it the continent’s largest producer. Crude generates more than 90 percent of the nation’s foreign-exchange earnings.
About 800 people were killed and at least 75,000 forced to flee their homes after elections in 2011 that brought Jonathan to power. Gunmen attacked an opposition rally in the southern oil-producing Rivers state last month.
Uncertainty over who will control Africa’s biggest economy after the elections and whether they will reassess oil companies’ contracts is a bigger threat to output than an insurgency being waged by militant group Boko Haram, Mahesh said. The fighting has largely been “constrained to the north of Nigeria, whereas most of the oil is in the south,” he said.
The conflict with Boko Haram, which claimed at least 1,600 lives in January and more than 4,700 in 2014, caused the vote to be delayed by six weeks. On March 7, three separate suicide bombings killed 54 people in the northeastern Nigerian city of Maiduguri, which has been targeted by numerous bombings and grenade attacks attributed to Boko Haram.
Teneo Intelligence, a New York-based risk-advisory service, said while it expects the March 28 vote to go ahead despite speculation that it may be delayed further or annulled altogether, its credibility isn’t assured.
“Developments on the ground suggest that the election results could be significantly compromised, potentially triggering clashes between supporters of the two main parties,” Teneo said in a March 5 note to clients. Speculation is rife of political parties buying voter cards from poor people in their opposition’s strongholds, which would deprive them of the right to vote, it said.
Nigeria’s next government will have to contend with a slump in the international price of oil, which accounts for 70 percent of government revenue. The price of Brent crude, which serves as a reference for Nigerian oil, has dropped almost 50 percent since June last year.
While Nigeria is a member of the Organization of Petroleum Exporting Countries and wants the group to reduce oil output to lower a global glut and push up prices, it holds little sway over such decisions, according to Mahesh.
“They will just have to get used to lower oil prices,” he said. “It’s just a new reality.”
State oil producer Nigerian National Petroleum Corp. doesn’t envisage any disruption to production, spokesman Ohi Alegbe said by phone from Abuja, the capital.
Brent traded at about $59.60 a barrel on Monday. Mahesh expects the price will average just more than $40 a barrel in the first half of this year, and could fall to as low as $30, before rebounding to an average $46 in the second half and $60 next year as global oversupply shrinks.
Nigeria remains a compelling investment destination, despite the oil-price slump, said Chris Paizis, head of markets distribution for the continent excluding South Africa at Barclays’ unit in the country.
“It’s very clear the Nigerian economy will survive, no matter where oil prices go,” he said by phone from Cape Town on March 5. “It’s a large economy. Our mission is to grow our presence there, irrespective of where current prices are.”