Tuesday, January 17, 2012

Oil Strikes in Nigeria

CNN: Nigeria’s Oil Economics Fuel Deadly Protests
MarketWatch: Nigeria Oil Union Says Not Shutting Production Yet
NYT: Nigerians Protest Rise in Oil Prices
Reuters: Update 6- Nigerian Fuel Protests Grow, 13 Killed in Attacks

Nigeria has recently experienced a sharp increase in oil prices. The increase is the result of a government decision to discontinue funding an oil subsidy. Although Nigeria is one of the largest producers of oil in the world, its refineries are dysfunctional, forcing the government to import gasoline for its population at higher prices than what Nigeria receive from its own oil sales. The government started the subsidy to help its large poor population afford gasoline.

The government’s decision to end the oil subsidy comes after two decades worth of attempts that failed due to public resistance. President Goodluck Jonathan stated that the decision would save the government around $7 billion that it could allocate to other uses. The government’s goal is to use the money saved from the subsidies to develop roads, electricity, education, and healthcare. These areas have long been neglected, and are now substantial hindrances to economic development in Nigeria.

However, many Nigerians are angry with the government for taking away what they believe is the only help the government has ever given them. Riots and strikes have erupted as many doubt the historically corrupt government will follow its stated goal of using the saved money for the benefit of all. The riots are escalating daily and the strikes have shut down most of the country’s oil production and other economic activity.

Ongoing riots and striking and the lack of government compromise on the subsidy issue will likely make Nigeria’s economic situation worse. The escalating violence from the riots has already begun to dissuade foreign investment, which is important for encouraging economic growth. The strikes have also lowered oil production, which decreases the amount of money the government has available to spend for the benefit of the citizens. Nigeria may face a period of prolonged economic decline if the government fails to quell the escalating riots and strikes.

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