Nigeria is facing a dual macroeconomic challenge as Brent crude prices plunge below $60 per barrel, threatening to destabilize the country’s fragile exchange rate and deepen an already widening fiscal deficit.
The dramatic decline in oil prices, fueled by increased OPEC+ supply and diminishing global demand, has raised alarms among government officials and investors alike.
The primary concern lies with Nigeria’s 2025 federal budget, which was based on assumptions of $75 per barrel oil prices and a daily production target of 2.06 million barrels. As of March 2025, both of these projections are proving overly optimistic.
Brent crude prices have dropped to $59.25 per barrel, and Nigeria’s production has been far below expectations, averaging just 1.737 million barrels per day in January and 1.672 million in February, according to Ministry of Finance data.
Potential N19.6 Trillion Oil Revenue Shortfall
Research by Nairametrics suggests Nigeria could face a loss of up to N19.6 trillion in projected oil revenue if current trends persist throughout the year. This potential shortfall is a result of lower-than-expected oil prices, underperforming production figures, and a weakening exchange rate.
In Q1 2025, Nigeria’s oil production lagged significantly behind budget forecasts. The exchange rate, meanwhile, has weakened to around N1,600/$, surpassing the N1,500/$ assumption used in the budget. These factors are severely affecting the value of oil exports, which make up Nigeria’s largest source of government revenue.
With oil income at risk, the fiscal deficit could balloon from the planned N13 trillion to as much as N30.79 trillion. Closing this gap would require a combination of borrowing, stringent cost-cutting measures, and a major push to increase non-oil revenues.
Pressures on Exchange Rate Stability
More concerning than the fiscal imbalance, however, is the increased pressure on Nigeria’s foreign exchange market. Historically, the naira has been closely tied to oil prices; when oil prices fall, the naira typically weakens due to reduced dollar inflows, eroding reserves and triggering speculative behavior.
In April, the naira dropped to over N1,600/$ on both official and parallel markets, before experiencing a slight recovery, supported by targeted interventions from the Central Bank of Nigeria (CBN). During the IMF/World Bank Spring Meetings in Washington D.C., CBN officials revealed that these interventions were financed by dollar reserves accumulated earlier in the year.
Despite a net FX inflow of $15.2 billion in Q1 2025, with total inflows of $28.92 billion and outflows of $13.72 billion, analysts warn that sustained low oil prices could weaken the CBN’s ability to defend the naira, especially if foreign inflows diminish further and oil revenues continue to decline.
Investor Concerns Despite Progress
Though Nigeria has taken bold steps such as removing fuel subsidies, unifying exchange rates, and liberalizing the FX market, investors remain cautious due to the country’s ongoing structural vulnerabilities. Joyce Chang, Chair of Global Research at JPMorgan Chase, praised Nigeria’s reform progress but highlighted the deteriorating external environment.
“We’re now facing a potential 3% of GDP tax impact from recent U.S. tariffs,” she said. “Although Nigeria has made strides, oil price volatility remains a key risk.”
OPEC+ Decisions Compound Nigeria’s Challenges
Nigeria’s situation is further complicated by its limited influence within the OPEC+ cartel. The recent decision to increase production was led by major players like Saudi Arabia, Russia, and Iraq, leaving Nigeria excluded. OPEC+ plans to reintroduce 2.2 million barrels per day of previously withheld supply by October, which could depress prices further.
Nigeria, already struggling with pipeline vandalism, oil theft, and aging infrastructure, has been unable to meet its production quota and is unlikely to benefit from any additional allocations. This leaves the country vulnerable to downside risks without the cushion of increased output to offset potential revenue losses.
Prolonged Low Oil Prices Likely
Market forecasts from Barclays predict that Brent crude prices will average $66 per barrel in 2025, falling to $60 in 2026. Similarly, a survey by Haynes Boone LLP reported that most global banks expect oil prices to stay below $60, potentially through the middle of a 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 sharply disrupt supply, oil-dependent economies like Nigeria could face a prolonged period of low prices.
Government Responds with Adjustments and Scenario Planning
In light of these challenges, Nigeria’s Minister of Finance, Wale Edun, acknowledged the risks at the IMF Spring Meetings but reassured that the government is already taking action. He stated that the drop in oil prices below budget projections is being addressed, and the government is adjusting to current realities.
Edun disclosed that a subcommittee under the Economic Management Team (EMT) has been formed to model different scenarios, revise fiscal projections, and recommend appropriate responses. He also highlighted efforts to boost oil production, including directives to NNPC’s new leadership to reduce inefficiencies and increase output.
Simultaneously, the government is intensifying efforts to diversify revenue streams, focusing on non-oil revenue through a robust revenue assurance initiative aimed at digitizing revenue collection, plugging leakages, and expanding the tax base.
