Revenue expectation from oil export which Government expects to deploy for effective implementation of the 2024 budget, may be affected as major global oil traders are moving away from petrodollar transactions.
In the 2024 budget proposal the federal government has considered conservative oil price benchmark of 77.96 U.S. Dollars per barrel and a daily oil production estimate of 1.78 million barrels per day after a careful review of global oil market trends, and that a Naira to U.S. Dollar exchange rate of 750 naira per U.S. Dollar was adopted for 2024 as well.
However, report shows that a fifth of global oil trade this year was settled in currencies different from the U.S. dollar as countries such as Russia and China move away from the petrodollar.
Nigeria is pushing to reach and exceed the 2024 crude oil production budget target of 1.7 million barrels per day (bpd).
Minister of state for petroleum resources (Oil), Heineken Lokpobiri, said that the country can boost crude oil production to 2 million bpd.
The shift from petrodollar business according to JP Morgan’s head of global commodities strategy, Natasha Kaneva, who spoke to the Wall Street Journal and said sanctions have been a major motivator for Russia and Iran to start doing their oil business in non-dollar currencies.
“The U.S. dollar is getting some competition in commodities markets,” Kaneva said, just a day after news broke that Russia and Iran have agreed to completely stop using the U.S. dollar in bilateral trade.
Indeed, some analysts have argued that the barrage of sanctions that the U.S. leveled on Russia is causing other countries to consider ditching the dollar as a way of insulating themselves from the effect of potential sanctions.
“This is something other countries are increasingly concerned about,” William Jackson, chief emerging-markets economist at Capital Economics, told the WSJ.
“Some are seeking to reduce their risk of possible sanctions on the use of dollars in trade. China is trying to act as a geopolitical counterweight.”
Yet sanctioned oil producers are not the only ones eager to ditch the dollar. China has also been active in replacing dollars in international trade with its own currency, which it seeks to make more global.
Earlier this month Nikkei Asia reported that the Chinese yuan had become the fourth most popular currency in international settlements in November, overtaking the Japanese yen. The report explained the development with the more active trade between Russia and China.
A month earlier, in October, China also completed the first cross-border payment for oil in digital yuan. Before that, state-owned oil companies made several oil and gas purchases paying for them in the Chinese currency rather than dollars.
Per JP Morgan data, there were 12 major commodity contracts that were settled in currencies different from the greenback this year, the WSJ reported, adding that this compared with seven such deals in 2022 and two in the period between 2015 and 2021.
Among the 2023 deals were one between the UAE and India for crude oil deliveries to be paid for in rupees, and another a currency swap line between Saudi Arabia and China worth $7 billion.
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