India, Nigeria’s largest destination for oil exports, has suffered a drop in oil imports by 7% to 3.9 million barrels per day (BPD), paving the way for lower government revenues for the next couple of months. This is because the country represents 16.79% of Nigeria’s total revenue generated from exports in the first quarter of 2021.
Nairametrics reported on Friday that oil prices were on track to suffer their worst week since March, following a drop in crude oil imports by Covid-19 ravaged India. Demand for oil in India dropped to a 9-month low during the week, paving the way for one of the worst weeks for global oil prices this year. A potential increase in crude oil sales volumes by OPEC countries is also impacting on lower oil prices, especially after Saudi Arabia and UAE appear to have reached a truce over increasing oil outputs.
India is regarded as the world’s third-largest importer of oil but as a result of the current COVID-19 Delta variant plaguing the country, the government was forced to impose new lockdown restrictions. This is thought to have triggered a drop in oil demand to 3.9 million barrels per day (bpd) of crude oil in June, which was down by 7% compared to the imports in May.
Nigeria is India’s 13th largest country of import behind other crude oil exporters such as the US, Iraq, Saudi Arabia, and UAE. In contrast, India is Nigeria’s largest export destination. However, Iraq, Saudi and UAE are ahead of Nigeria as India’s top oil import countries.
Nigeria relies massively on India for its crude oil sales proceeds and may feel the impact of the drop in inventories. This is not the first time India is cutting its crude oil imports. India also cut its oil imports in May, June and July 2020. In fact, the July drop was the lowest in 10 years for India. Subsequently, Nigeria’s total crude oil and gas exports fell from about $11 billion in the first quarter of 2020 to about $5.1 billion and $7.3 billion in the second and third quarters of the same year respectively.
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What this means for Nigeria
Nigeria relies on crude oil for over 60% of the Federal Government’s budgeted revenue, and over 85% of foreign exchange earnings. Thus, whatever happens to India affects Nigeria significantly. With Nigeria’s external reserves stuck at around $33 billion, the country needs oil revenues to pick up.
In the first quarter of 2021, Nigeria recorded a 42% year on year drop in its current account, from crude oil and gas export proceeds after it dropped from $6.48 billion in the first quarter of 2021 compared to $11.1 billion in the corresponding period in 2020. It also represents a 16.4% drop when compared to the $7.7 billion recorded in the 4th quarter of 2020.
The danger for Nigeria is what impact this might have on the country’s exchange rate situation. If oil earnings continue to dwindle due to India’s oil import cuts, then this will pose a significant challenge for Nigeria.
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What you should know
Of India’s portion of the total export, approximately 95% of it is from crude oil. In monetary terms, this is approximately N462 billion.
Spain comes in ranking #2, generating approximately N213 billion in crude oil exports representing almost half (46.11%) of India’s crude oil revenue to the nation. This indicates that India is Nigeria’s biggest customer for its crude oil products.
Nigeria generated a total of N9 trillion on exports in the first quarter of 2021 and crude oil took the lion share, representing 66.38% or approximately N1.9 trillion of total exports. India represents 24% of the total income generated from crude oil.
Comparing the first quarter of 2021 and the fourth quarter of 2020, we noted a drop in revenue from exports. Nigeria generated approximately N2 trillion in the 4th quarter of 2020, representing a decline of 9.38% to N2.9 trillion.
Of the total exports generated in the 4th quarter, crude oil represents 78.93% or N5 trillion of the total export income generated. India represents 17.12% of the total exports amounting to N547 million and crude oil represents 94.48%. Of the total crude oil export, India generated 20% of the value representing N517 million for that quarter.
From these stats, we can observe that the total crude export declined by 24% between the quarters, which is majorly attributable to the decline in India’s crude export by 10.64%. In fact, the total crude oil income generated in the 4th quarter represents 86% of the total income generated on exports in the first quarter of 2021.