Nigeria’s crude oil earnings faces a major threat after India, the world’s third-largest importer of crude, recorded its lowest oil imports in 10 years in the month of June.
- Reports from Reuters indicate India oil imports dropped in the month of June as its refineries reduced demand due to maintenance and turnarounds. India reportedly imported 3.2 million barrels per day in June, the lowest since October 2011 and a 0.4% decline from May and 28.5% lower than the same period in 2019.
The report also indicates July has not been any better due to weak demand due to the effect of the coronavirus pandemic.
It’s in the data
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.
- In the quarter ending March 2020, Nigeria’s export to India was N637.5 billion or 15.6% of total exports. Crude oil represented N526.8 billion of the total export amount.
- India replaced the US as Nigeria’s largest export destination for crude as demand for crude increased in the second-most populous country in the world.
- India has been one of the fastest growing economies in the world with industrialization widening its appetite for crude. However, the impact of COVID-19 has halted economic growth in India.
- The country is now next to the US and Brazil in countries with the most cases of COVID-19. India has over 1.4 million confirmed cases and 34k in reported deaths.
What it means for Nigeria
As Nigeria’s largest export destination, the country relies heavily on India’s patronage to meet its crude oil sales targets as the government braces for a negative GDP growth rate and an ensuing recession. Nigeria’s minister of Finance, Zainab Ahmed revealed Nigeria collected over 56% less retained revenues in the first 5 months of the year as oil prices crashed and demand waned.
Nigeria was able to mitigate lower oil revenues after it devalued its official exchange rate from N307/$1 to N360/$ in March. The government reported it shared N681 billion with states as FAAC in June 2020 higher than N547 billion shared in May 2020. FAAC revenues are mostly funded from oil revenues while non-oil revenue boost from the increase in VAT has also helped increase the amount available to share.