Nigeria is staring down the barrel of twin macroeconomic shocks as Brent crude prices plunge below $60 per barrel.
This development could destabilize the country’s fragile exchange rate regime and widen an already gaping fiscal deficit.
The sharp drop in oil prices, driven by accelerated OPEC+ supply increases and weakening global demand, has triggered anxiety in government circles and among investors.
At the core of this brewing challenge is the 2025 federal budget, which was predicated on an oil price benchmark of $75 per barrel and daily production of 2.06 million barrels.
As of March 2025, both assumptions appear grossly optimistic.
Brent has tumbled to $59.25 per barrel, and Nigeria’s production averaged just 1.737 million barrels per day in January and 1.672 million in February per Ministry of Finance data.
Estimated N19.6 trillion oil revenue shortfall
Nairametrics research estimates that Nigeria could lose up to N19.6 trillion in projected oil revenue if these current trends persist through the year.
This potential shortfall is a direct consequence of lower-than-budgeted oil prices, underwhelming production, and a weaker exchange rate.
- Average daily production in Q1 2025 has lagged significantly behind budget projections.
- The exchange rate has weakened to around N1,600/$, surpassing the N1,500/$ assumption used in budget calculations.
- Combined, these factors severely constrain the value of oil exports, Nigeria’s single largest source of government revenue.
With oil-related income in jeopardy, the fiscal deficit could balloon from the planned N13 trillion to as much as N30.79 trillion.
Closing this deficit would require a mix of borrowing, aggressive cost-cutting, and a step-change in non-oil revenue mobilization.
A looming threat to exchange rate stability
Beyond the fiscal imbalance, a potentially more destabilizing consequence is the renewed pressure on Nigeria’s foreign exchange market.
- Historically, the naira has followed oil prices in lockstep. When oil prices decline, the naira typically weakens due to declining dollar inflows, eroding reserves, and heightened speculative activity.
- This time is no different. In April, the naira fell beyond N1,600/$ on both official and parallel markets before staging a modest recovery, aided by targeted Central Bank of Nigeria (CBN) interventions.
At an investor meeting in Washington D.C., during the IMF/World Bank Spring Meetings, CBN officials disclosed that recent FX market interventions were funded from dollar reserves stockpiled earlier in the year.
- They also revealed that Nigeria recorded a net FX inflow of $15.2 billion in Q1 2025, with total inflows of $28.92 billion and outflows of $13.72 billion, reflecting early-year optimism driven by reforms and increased diaspora remittances.
Still, analysts warn that sustained low oil prices could undermine the CBN’s capacity to defend the naira, particularly if foreign inflows begin to taper off and oil receipts fall further.
Investors express concern despite progress
While Nigeria was praised for taking bold steps such as removing fuel subsidies, liberalizing FX, and unifying exchange rates, investors remain wary of structural vulnerabilities.
Joyce Chang, Chair of Global Research at JPMorgan Chase, lauded Nigeria’s reform progress but noted that the external environment had deteriorated.
- “We’re now dealing with a potential 3% of GDP tax effect from recent U.S. tariffs,” she said. “Nigeria has made strides, but oil price volatility remains a key risk.”
OPEC+ decisions further complicate Nigeria’s outlook
Nigeria’s predicament is compounded by its limited influence within the OPEC+ cartel.
Recent decisions to ramp up production were led by Saudi Arabia, Russia, Iraq, and others—excluding Nigeria.
The bloc plans to reintroduce 2.2 million barrels per day of previously withheld supply by October, a move that could further suppress prices.
Nigeria, beset by pipeline vandalism, oil theft, and decaying infrastructure, is already falling short of its quota and is unlikely to benefit from any additional allocations.
As a result, it is exposed to downside risks without the cushion of increased output to offset revenue losses.
Market signals point to prolonged low oil prices
Forecasts from Barclays project Brent at $66 per barrel in 2025 and $60 in 2026. A survey conducted by Haynes Boone LLP and reported by BNN Bloomberg found that most global banks expect oil prices to remain below $60 into the midpoint of a potential second Trump presidency.
With OPEC+ lifting supply caps, U.S. shale producers expanding, and global demand softening, the market appears oversupplied.
Unless geopolitical tensions in the Middle East escalate sharply disrupting supply and driving up prices, oil-dependent economies like Nigeria could face a prolonged low-price environment.
Government moves to adjust: Scenario planning underway
Nigeria’s Minister of Finance, Wale Edun, acknowledged these risks at the IMF Spring Meetings but maintained that the government is already responding.
- “The oil price drop is below the 2025 budget, and the government is adjusting to the actual realities on ground,” he stated.
Edun disclosed that a subcommittee under the Economic Management Team (EMT)—comprising the Ministry of Budget and Planning, the Central Bank, and other key agencies had been tasked with scenario modeling to revise fiscal projections and recommend appropriate responses.
Efforts are also underway to increase oil production. Edun pointed to a directive given to the new NNPC management to boost output while reducing operational inefficiencies.
- In parallel, the government is intensifying efforts to enhance non-oil revenue through a “robust revenue assurance initiative” focused on digitizing revenue-collecting MDAs, plugging leakages, and broadening the tax net.
