Airline flights grounded for lack of fuel in major oil exporting country

It turns out that it’s pretty easy to screw-up an intrinsically rich, purportedly market-based economy with price controls and corruption. Witness the state of chaos reigning in the Nigerian fuel industry. AP reports:

Nigerian airlines grounded flights Saturday and radio stations were silenced as a months-long fuel shortage aggravated by striking oil tanker drivers worsened in Africa's biggest oil producer.

Vehicles also were grounded. Normally bustling roads in Lagos, a metropolis of 20 million, were half-empty and gas stations closed Saturday. One station owner said he had fuel but strikers are threatening to set fire to any stations selling it. He insisted on anonymity for fear of reprisals.

Police were arresting black marketers selling fuel at roadsides at four times the regulated 87 naira (40 cents) a liter.

Radio stations went dead Saturday night, including Classic FM, The Beat and City FM, hit by frequent power outages and out of diesel fuel for generators.

Chaos reigned at bus stations where vehicles stood idle and at Lagos' Murtala Muhammad International Airport as one flight after another was canceled.

"All flights suspended or canceled. No fuel. Been sitting here since 6 a.m.," one customer complained on Twitter.

This is stunning, coming in a nation that produces some of the sweetest crude oil on planet earth, and that ranks as one of the top exporters of crude oil to the United States. While many people simply write off Nigeria, the story is more complicated than incompetence. In fact, Nigerians are a talented lot, and Nigerian immigrants to the United States do very well, indeed. The problem is political in nature.

The crude oil resources with which Nigeria is blessed are also a curse. There is wealth available to plunder by corrupt bureaucrats and their private sector allies. And to buy off the public, price controls are imposed, to make refined producst cheap for the domestic market.

The problem is that this makes refining a marginally profitable business so in a coals-to-Newcastle situation, Nigeria imports refined products because refiners won’t expand to meet domestic demand.

 With price controls come pressures to keep wages low. That accounts for the fuel delivery drivers’ strike. And with fuel deliveries reduced, whole sectors start to shut down.

In the United States, we experienced gas station lines with price controls under Jimmy Carter, and since we have avoided the folly of price controls. But the next time oil prices spike, you will hear calls for regulating the oil companies.

Nigeria stands as an object lesson in the folly of this. If you like your folly with a Latin beat, look to Venezuela, another oil rch country with severe shortages.

It turns out that it’s pretty easy to screw-up an intrinsically rich, purportedly market-based economy with price controls and corruption. Witness the state of chaos reigning in the Nigerian fuel industry. AP reports:

Nigerian airlines grounded flights Saturday and radio stations were silenced as a months-long fuel shortage aggravated by striking oil tanker drivers worsened in Africa's biggest oil producer.

Vehicles also were grounded. Normally bustling roads in Lagos, a metropolis of 20 million, were half-empty and gas stations closed Saturday. One station owner said he had fuel but strikers are threatening to set fire to any stations selling it. He insisted on anonymity for fear of reprisals.

Police were arresting black marketers selling fuel at roadsides at four times the regulated 87 naira (40 cents) a liter.

Radio stations went dead Saturday night, including Classic FM, The Beat and City FM, hit by frequent power outages and out of diesel fuel for generators.

Chaos reigned at bus stations where vehicles stood idle and at Lagos' Murtala Muhammad International Airport as one flight after another was canceled.

"All flights suspended or canceled. No fuel. Been sitting here since 6 a.m.," one customer complained on Twitter.

This is stunning, coming in a nation that produces some of the sweetest crude oil on planet earth, and that ranks as one of the top exporters of crude oil to the United States. While many people simply write off Nigeria, the story is more complicated than incompetence. In fact, Nigerians are a talented lot, and Nigerian immigrants to the United States do very well, indeed. The problem is political in nature.

The crude oil resources with which Nigeria is blessed are also a curse. There is wealth available to plunder by corrupt bureaucrats and their private sector allies. And to buy off the public, price controls are imposed, to make refined producst cheap for the domestic market.

The problem is that this makes refining a marginally profitable business so in a coals-to-Newcastle situation, Nigeria imports refined products because refiners won’t expand to meet domestic demand.

 With price controls come pressures to keep wages low. That accounts for the fuel delivery drivers’ strike. And with fuel deliveries reduced, whole sectors start to shut down.

In the United States, we experienced gas station lines with price controls under Jimmy Carter, and since we have avoided the folly of price controls. But the next time oil prices spike, you will hear calls for regulating the oil companies.

Nigeria stands as an object lesson in the folly of this. If you like your folly with a Latin beat, look to Venezuela, another oil rch country with severe shortages.