Nigeria eyes FX gains as crude tops $105/barrel

Nigeria is set to further benefit from rising foreign exchange inflows as global crude oil prices surge above $105 per barrel, driven by escalating Middle East tensions that have tightened supply expectations, boosting revenues and supporting naira stability, OKECHUKWU NNODIM writes

With Brent crude trading above $105 per barrel, well above Nigeria’s 2026 federal budget benchmark of $64.85, the ongoing global oil rally is expected to significantly strengthen Nigeria’s fiscal position, improve foreign exchange inflows, and support naira stability.

Analysts say that if geopolitical tensions escalate into a full-scale conflict disrupting the Strait of Hormuz – a critical passage for roughly 20 per cent of global crude shipments – oil prices could spike further to as high as $150 per barrel. Such a scenario would deliver a major windfall for oil-exporting countries like Nigeria, potentially improving external reserves and boosting government revenue.

The recent price surge reflects growing geopolitical risk premiums, particularly linked to heightened tensions between the United States and Iran, a key Middle Eastern oil producer. Market concerns have also been amplified by disruptions in other supply regions, including unplanned outages in Kazakhstan and weather-related production constraints in the United States caused by Winter Storm Fern.

Oil prices have remained on an upward trajectory for months, rising above $105 per barrel as fears intensified over possible U.S. military escalation in the Middle East. While markets had initially anticipated oversupply conditions in 2026, persistent geopolitical tensions, sanctions on Russian oil flows, and sustained demand from China have altered the outlook, keeping prices elevated.

For Nigeria, where over 80 per cent of government revenue is linked to oil earnings, the development presents a significant macroeconomic opportunity. Higher crude prices typically translate into improved fiscal revenues, stronger external buffers, and enhanced capacity for economic stabilisation.

CBN reforms

The Central Bank of Nigeria, under Governor Olayemi Cardoso, has implemented reforms that are expected to further amplify the benefits of higher oil receipts. These include foreign exchange market unification, improved liquidity management, and measures to attract foreign capital inflows. The reforms have also helped narrow the gap between official and parallel market exchange rates.

Recent data from the CBN indicates that the Nigerian Foreign Exchange Market rate strengthened to N1,396.99/$1 on Thursday from N1,400.48/$1 the previous day, marking the naira’s return below the psychologically significant N1,400/$1 threshold for the first time in over a year.

Market operators say the development reflects improved confidence in Nigeria’s macroeconomic direction, supported by stronger external inflows, rising reserves, and policy stability. President of the Association of Bureaux De Change Operators of Nigeria, Aminu Gwadabe, said the naira has maintained relative stability across markets in recent months, reducing volatility that had previously characterised the foreign exchange space.

Foreign reserves have also continued to strengthen. Data shows that reserves stood at $48.44bn as of April 23, 2026, covering more than 12 months of import needs. Analysts project that the figure could rise to $51bn by year-end, in line with the CBN’s target of $51.04bn.

The apex bank also reports that reserves are being rebuilt organically through improved market operations, stronger non-oil exports, and increased capital inflows, rather than external borrowing.

Cardoso explained that Nigeria’s external position has improved significantly, noting that the current account balance rose over 85 per cent to $5.28bn in Q2 from $2.85bn in Q1. He added that oil production averaged 1.45 to 1.52 million barrels per day in 2025, while non-oil exports recorded growth of more than 18 per cent year-on-year.

“While oil production improved modestly to an average of 1.45–1.52 million barrels per day in 2025, the truly encouraging development is the strong performance of non-oil exports. Supported by ongoing reforms and greater exchange-rate flexibility, non-oil exports have grown by more than 18 per cent year-on-year,” he said.

Cardoso also noted that diaspora remittances increased by about 12 per cent, supported by improved transparency and settlement systems, with further gains expected as the Non-Resident BVN framework expands in 2026.

Experts speak

Financial experts say the combination of oil windfalls and structural reforms is reinforcing Nigeria’s macroeconomic resilience. Managing Director of Financial Derivatives Company, Bismarck Rewane, estimates the fair value of the naira at N1,257 per dollar, suggesting that the currency remains undervalued by about 11 per cent under purchasing power parity analysis.

He noted that exchange rates typically converge toward PPP levels over time, reinforcing expectations of medium-term currency stability if reforms are sustained.

Global economist Charlie Robertson also observed that a weaker dollar environment is beneficial for emerging markets like Nigeria, noting that it supports currency stability and capital inflows. “The weak dollar is dislocating many markets, but it is good for Africa, as we are seeing with the naira,” he said.

Beyond oil, Nigeria’s macroeconomic outlook is being shaped by structural reforms across fiscal and monetary policy. Economist Prof. Abiodun Adedipe highlighted key reforms, including fuel subsidy removal, forex market reforms, tax restructuring, and banking recapitalisation, all of which he said are improving efficiency and fiscal discipline.

He noted that subsidy removal alone has eliminated over $10.7bn in annual fiscal waste, while banking sector reforms are positioning financial institutions to support a projected $1tn economy.

Nigeria’s demographic and structural advantages, including a youthful population estimated at over 237 million and rising internet penetration of about 48 per cent, also support long-term growth potential. Improved urbanisation, telecom expansion, and digital adoption are expected to deepen productivity and expand economic activity.

The Central Bank has also strengthened coordination with fiscal authorities to enhance macroeconomic stability. Cardoso said the discontinuation of central bank deficit financing, alongside revenue reforms and Treasury Single Account improvements, has strengthened fiscal discipline.

“This stance is unequivocal as there will be no return to the practice of financing fiscal deficits by the Central Bank,” he said.

He added that sustained collaboration between fiscal and monetary authorities will be essential to maintaining price stability and restoring purchasing power.

As global oil markets remain volatile, Nigeria stands to benefit from sustained price elevation, provided reforms continue to anchor investor confidence, strengthen institutions, and improve economic efficiency.