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Instability in Nigeria inflates oil prices

Gheit, managing director of oil resources with Oppenheimer & Co., Inc., November 2007

[Fadel, “Foreign Policy: Seven Questions: The Price of Fear” http://www.foreignpolicy.com/story/cms.php?story_id=4045&page=1]
FP: How much of the price of oil right now is really a “risk premium” associated with political turmoil in places like the Middle East, Venezuela, and Nigeria?

FG: Well, it’s very difficult to really quantify it. I wish there were a scale or a yardstick that one can use to do that, but one can deconstruct the $97 oil price and compare it to the $67 oil price only three months ago and see what happened in the world to push oil prices by $30 over a very short period of time. And basically, I can cite a few: The sharp drop in the U.S. dollar because of the Federal Reserve cutting interest rates; increased tension in the Middle East with tough talk by the administration against the Iranians; also, the dispute between the Kurdish rebels and Turkey—all of these things basically gave the financial players additional ammunition, if you will, to push the fear factor to a higher level. I do believe that oil prices are inflated, and significantly. If I were to quantify how much, I would say at least $40.

Nigerian Federalism Bad: Instability

Nigerian federalism exacerbates religious disputes

Hanson, writer for the Council on Foreign Relations, 2007
(Stephanie Hanson, “Nigeria’s Creaky Political System” http://www.cfr.org/publication/13079/nigerias_creaky_political_system.html April 12)

How does the federalist structure influence religious tensions?
At the local level, divisiveness over religious issues has exacerbated and at times trumped ethnic rivalries, according to the International Crisis Group report. Under Obasanjo’s presidency, a Pentecostal and evangelical revival in the south paralleled a rise of fundamental Islam in the north. An upsurge in violence in the Middle Belt reflects this tension between the north and south. But as with ethnic disputes, there have not been any large-scale conflicts. Religious organizations act as alternatives to the state, and some argue that the weakness of government institutions, rather than ideological fervor, precipitated the religious revival.

Decentralization leads to Nigerian breakup and civil war

Ron Singer, Peace Corps volunteer in Nigeria from 1964 to 1967, January 1, 2005

(“Nigeria's slippery politics; Oil industry” Bulletin of the Atomic Scientists) Lexis
Today, violence in the Delta is due as much to extortion by criminals associated with the government as it is to protests against injustice. During the last decade, civil war has ripped though West Africa so virulently that it may seem reckless to suggest a country loosen its federal ties, albeit in the name of greater stability. And it is unlikely that the North would tolerate decentralization, which would mean a loss of revenues and power.

Nigerian federalism would lead to economic collapse and national instability

Ejobowah, Department of Global Studies, 2003
[John Boye, “The New Political Economy of Federal Preservation: Insights from the Nigerian Federal Practice”, http://www.queensu.ca/politics/rgonemc/EjobowahFederalismPaper2.pdf]

The reluctance of the centre to commit to market preserving federalism has to do with the difficulties that such reform might pose for governance. First, the existing states are not financially viable and may not survive in the short run. Of all the thirty-six states, only Lagos is self-sustaining and this is on account of an efficient tax system and a strict regime of accounting (BusinessDay, 30 September 2002). Most of the remaining states are not like Lagos State that is an industrial and commercial city-state; rather, they are non- industrialised with majority of the people operating outside the formal sector. In the short term fiscal devolution would either set these states crumbling or drive most of them into heavy borrowings. The outcome of the latter would be the Brazilian type of financial crisis that could compromise national stability. It is no coincidence that arguments for retrenching the centre have not received support across the country, especially from the non-oil bearing states. Second, devolution would require that the oil-bearing states have right to resources within their domain but pay taxes to the centre, as actually practiced in decentralized federal polities. In this case, the national government has to abandon its post-civil war policy of distributing the benefits of oil equally among all groups and sections of the country. The difficulty here is that, in the short run, the non-oil states would be in real financial distress as noted earlier on and, the centre, with its right to offshore oil reserves, would have no choice but to bailout the se states. In effect, there will be a return to the status quo ante with this group of states while the oil states possess financial power and independence. This would be asymmetrical federalism, Nigerian style. Furthermore, an arrangement by which the centre has to wait on the oil states to pay taxes is one that the federal government considers dangerous, as there is no guarantee that the states will fulfil their obligations. Bruce Berman (2004) has argued that the near absence of trust is a fundamental problem in the economy and institutions of contemporary Africa. The abstract and collaborative trust that underlies contracts and makes transactions possible in the modern world is somewhat weak in the African setting. This is especially true of Nigeria and is evidenced by the prevalence of the cash and- carry syndrome. Given the problem of trust, the federal level might consider it too risky to ground its financial operations on taxes the states may not pay when due. Martin Dent (2000) has revealed that within the current system of central fiscal control, the states rarely get their allocations from Abuja on time and that they have appointed liaison officers to reside in the federal capital where they can chase up payments due them from the ministry of finance. The national government is well aware of what would befall it if the states are given control of resources, and it is not likely to travel that road. Indeed, recent actions of the national government indicate that fiscal devolution is not an issue to be considered in the immediate future.
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