The global economy has witnessed drastic meltdown as a result of the virus outbreak, Oil prices have fallen to their lowest in 17years, a barrel is now sold at $25 with terrible implications on the oil-producing states. Border closures, restricted movements and a halt in economic activities in major countries in the world have affected the global economy.
Countries like the United States, Italy, Nigeria, South Africa, Spain and China have taken strict measures to ensure social distance and isolation among the people, hence, implementing total lockdown of the economy in other to contain the spread of coronavirus. For the past two weeks, the crude Oil price has fallen with a drastic reduction in consumption.
There has been competition among the oil-producing states in price cuts due to the low demand which rendered some countries with deficit budgets. However, Russia and Saudi Arabia had continued to flood the market and increase production with the objective of selling at predetermined prices. Poorer countries like Iraq and Ecuador revenues have been hit hard from the crash in Oil prices, it has affected their 80% of their revenues.
Other countries with high dependence on Oil and Gas in funding government budgets would witness a devastating effect on their economy due to the crash in Oil price. Their revenue would be cut and sectors like health, education and development related areas would be affected.
The continued drops in petroleum consumption in the countries affected by coronavirus have forced global economic slowdown. A case study is the effect of this on Nigeria which is a country dependent on oil and gas for over 90 per cent of her foreign exchange earnings. Presently, the country is struggling to find buyers for its crude oil output and willing to sell for lower prices.
The implication would be on the country’s finances and budgets. Prior to the fall in Oil price in march, the Federal Government of Nigeria had planned the 2020 budget towards a crude oil benchmark of $57 per barrel, on a daily crude oil production estimate of 2.18million barrels and an exchange rate of #305 per dollar.
However, the price of Nigeria’s Bonny Light has dropped to $33.73 per barrel below the budget as a result of the crash in the Oil price. The government was targeting oil revenue of #2.64 trillion for 2020, but this is impossible, hence, there would be a 40% cut on the target, this means the deficit budget would rise by 40per cent.
The implication of all these would be the inability to finance certain important projects and inability to pay workers salaries. The global economy effect on oil-producing countries economies have been devastating