Traders and analysts said rising diesel prices threaten to slow Nigeria's generator economy as war in the Middle East puts pressure on supplies of the industrial fuel and the crude best suited for its production.
Analysts wonder how a country of Nigeria's size and population can depend on off-grid electricity from generators for its economic productivity.
BusinessDay economists continue to say that failure to ensure grid availability and reliability in the country has resulted in an incalculable socio-economic cost over the last 30+ years and another incalculable cost to productivity, competitiveness and our image abroad.
Since the start of the war against Iran, the price of diesel has increased to N1,650 per liter in some parts of the country.
Traders say diesel has been in short supply for years because of Ukrainian attacks on Russian refineries and Western sanctions on Moscow's exports.
The Israel-US war with Iran has further heightened supply concerns as Tehran is disrupting shipping in the Strait of Hormuz, through which 10% to 20% of global marine diesel supplies flow.
“Structurally diesel is the most exposed product to this conflict,” said Shohruh Zukhritdinov, founder of Dubai-based Nitrol Trading. “Diesel supports freight, agricultural, mining and industrial activities, making it the most macro-sensitive barrel in the system.”
Energy economist Philippe Verlager estimates the diesel supply loss associated with the disruption in the Strait of Hormuz at about 3 to 4 million barrels per day, or about 5% to 12% of total global consumption.
He said 500,000 bpd of diesel would be lost due to blocked exports from Middle East refineries.
