Oil wars : Africa caught in the crossfire

• Main Author: Gopaldas, Ronak
• Other Authors: Nanyang Business School
• Format: Newsletter
• Language: English
• Published: 2020
• Subjects: Business; Business::General; Africa; Oil Wars
• Online Access: https://hdl.handle.net/10356/142643
• Institution: Nanyang Technological University

Russia refused to accede to OPEC’s March 2020 requests to cut oil production. The Saudi retaliation that followed sparked a violent sell-off in the commodity. Oil shed 30% of its value in a single day. Although oil prices then stabilized somewhat, the plunge (and continuing low prices) has important financial, trade and economic implications for African oil producers. As mineral rich countries, most of Africa’s oil producers are overly reliant on oil income. They have yet to diversify their tax and export revenue streams. This puts them at the mercy of political and economic actions by duelling countries, such as the Saudi and Russian stalemate. While these African countries may feel caught in the crossfire, it is ultimately the citizens and businesses of each country that will bear the full brunt of the economic fallout. Here we examine those consequences for Nigeria, Ghana, Angola and Gabon that are the major oil producing counties in Africa. This article unpacks their currency, foreign exchange and sovereign debt positions to better understand how well each can withstand the severe oil price shock. The fall in oil prices may be temporary. The implications of the political standoff are likely not to be, and businesses will need to adapt to new market dynamics and address their overreliance on the windfalls of an oil-based economy.