Nigeria is grappling with severe macroeconomic challenges as Brent crude oil prices plummet below $60 per barrel, raising alarms about the country’s fragile exchange rate system and its already ballooning fiscal deficit.
The steep decline in oil prices, which is attributed to an increase in OPEC+ supply and weakening global demand, has sparked widespread concern among government officials and investors. Central to this growing crisis is the 2025 federal budget, which was based on an oil price assumption of $75 per barrel and daily production of 2.06 million barrels. However, both of these assumptions now seem overly optimistic, with Brent crude dipping to $59.25 per barrel and Nigeria’s oil production averaging only 1.737 million barrels per day in January and 1.672 million barrels per day in February, according to Ministry of Finance data.
Potential Oil Revenue Shortfall Reaches N19.6 Trillion
Research conducted by Nairametrics suggests that if the current trends persist, Nigeria stands to lose up to N19.6 trillion in projected oil revenues. This revenue shortfall is the result of lower-than-expected oil prices, underperforming production levels, and a weakening exchange rate. In the first quarter of 2025, daily oil production significantly lagged behind budget projections, further exacerbating the country’s fiscal troubles. The naira’s depreciation to around N1,600/$—well beyond the N1,500/$ assumption in the budget—has only compounded the situation, reducing the value of Nigeria’s oil exports, which remain the government’s primary revenue source.
With oil revenues under threat, Nigeria’s fiscal deficit could escalate from the originally planned N13 trillion to a staggering N30.79 trillion. Closing this gap will require a mix of strategies, including increased borrowing, aggressive cost-cutting measures, and a major overhaul of non-oil revenue mobilization.
Naira Faces Renewed Pressure as Oil Prices Drop
Beyond the fiscal imbalance, a more destabilizing concern is the pressure on Nigeria’s foreign exchange market. Historically, the value of the naira has mirrored the fluctuations in oil prices. As oil prices fall, the naira weakens, driven by reduced dollar inflows, declining foreign reserves, and heightened speculative activity in the foreign exchange market.
This pattern has continued into 2025. In April, the naira plunged past N1,600/$ in both official and parallel markets before staging a brief recovery, supported by targeted interventions from the Central Bank of Nigeria (CBN). During the IMF/World Bank Spring Meetings, CBN officials revealed that these interventions had been funded from earlier stockpiled dollar reserves. They also disclosed that Nigeria had recorded a net FX inflow of $15.2 billion in the first quarter of 2025, with total inflows of $28.92 billion and outflows of $13.72 billion, driven by optimism about reforms and increased diaspora remittances.
However, analysts caution that sustained low oil prices could undermine the CBN’s ability to defend the naira, particularly if foreign inflows slow and oil revenue continues to fall.
Investors Express Caution Despite Reforms
While Nigeria’s bold reforms—such as removing fuel subsidies, liberalizing the foreign exchange market, and unifying exchange rates—have received praise, investors remain cautious due to underlying structural vulnerabilities. Joyce Chang, the Chair of Global Research at JPMorgan Chase, praised Nigeria’s reform efforts but noted the deteriorating external environment, emphasizing that oil price volatility continues to pose a significant risk.
“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 Add to Nigeria’s Struggles
Nigeria’s position within OPEC+ has further complicated its outlook. Recent decisions to increase oil production were driven by leading members like Saudi Arabia, Russia, and Iraq, while Nigeria was excluded from the expansion. The cartel plans to reintroduce 2.2 million barrels per day of previously withheld supply by October, which could further suppress global oil prices.
With Nigeria already struggling with pipeline vandalism, oil theft, and aging infrastructure, it is unlikely to benefit from any additional OPEC+ allocations. This leaves the country exposed to downside risks, as it cannot offset revenue losses with increased production.
Market Outlook Suggests Low Oil Prices Persist
Forecasts from Barclays indicate that Brent crude prices will remain relatively low, projecting $66 per barrel in 2025 and $60 per barrel in 2026. Similarly, a survey by Haynes Boone LLP, reported by BNN Bloomberg, found that most global banks expect oil prices to remain below $60 for the foreseeable future, possibly extending into the midpoint of a potential second Trump presidency. With OPEC+ lifting supply caps, U.S. shale production expanding, and global demand softening, the market appears oversupplied.
Unless geopolitical tensions in the Middle East intensify, driving a surge in oil prices, oil-dependent economies like Nigeria are likely to face a prolonged period of low prices.
Government Response: Scenario Planning and Policy Adjustments
In response to these challenges, Nigeria’s Minister of Finance, Wale Edun, acknowledged the risks at the IMF Spring Meetings but assured that the government is already taking steps to adapt. “The oil price drop is below the 2025 budget, and the government is adjusting to the actual realities on the ground,” he said.
Edun revealed that a subcommittee under the Economic Management Team (EMT), which includes the Ministry of Budget and Planning, the Central Bank, and other key agencies, is conducting scenario modeling to revise fiscal projections and recommend appropriate actions.
The government is also focusing on increasing oil production by directing the newly appointed NNPC management to enhance output and reduce inefficiencies. Additionally, efforts are being made to boost non-oil revenue through a “robust revenue assurance initiative,” aimed at digitizing revenue-collecting agencies, plugging leakages, and expanding the tax base.
As Nigeria navigates these macroeconomic shocks, the government faces a delicate balancing act—adjusting fiscal policies, stimulating non-oil revenue streams, and defending the naira—all while managing the ongoing oil price volatility that could determine the nation’s economic future.
