Market News

BY Dipo Oladehinde 

Nigeria’s economy is facing a renewed strain as global oil prices plummet, reaching levels reminiscent of the devastating downturn experienced during the peak of the COVID-19 pandemic.

This sharp decline is triggering significant concerns about the nation’s fiscal stability, given its heavy reliance on crude oil exports.

Brent crude, global oil price, fell by 5.09 percent to $59.62 per barrel at 12.30 WAT while US West Texas Intermediate fell by 5.54 percent to $56.28 per barrel on Wednesday.

The recent decline in oil prices follows China’s decision to raise tariffs on the United States goods to 84 percent, up from 34 percent, effective April 10 – a retaliatory move after President Donald levied 104 percent duties on Chinese imports.

Beijing has consistently opposed tariff rises and said Wednesday it would take ‘firm and forceful’ steps to protect its interests.

Its finance ministry later said in a statement that ‘additional tariff rates’ on imports originating in the United States would ‘rise from 34 percent to 84 percent,’ effective from 12:01 pm on Thursday.

“China’s aggressive retaliation diminishes the chances of a quick deal between the world’s two biggest economies, triggering mounting fears of economic recession across the globe,” Ye Lin, Rystad Energy vice president for oil markets, told Reuters.

“China’s 50,000 bpd to 100,000 bpd of oil demand growth is at risk if the trade war continues for longer. However, a stronger stimulus to boost domestic consumption could mitigate the losses,” the analyst added.

For Nigeria, which gets about 90 percent of its foreign exchange earnings from oil exports, that amounts to a significant lost income.

The government’s $37 billion budget for 2025 — with its $8 billion deficit — was benchmarked against an international oil price of $75 a barrel.

Paul Alaje, an economist, cautioned that US President Donald Trump’s proposed tariff policy could significantly disrupt Nigeria’s economy-not in abstract terms but through specific economic disruptions.

These include rising import inflation, worsening exchange rate volatility, and reduced trade flows beyond crude oil.

Alaje explained that although Nigeria may appear shielded because of its crude oil exports, the broader economy remains highly exposed.

He said, “I’ve heard some government officials say the Nigerian economy is protected against the policy that President Trump is making. Well, I would say to the extent of selling off crude, the person that spoke may be correct, but when you look at the economy at large, we have started feeling the impact from exchange rates. It will affect us. Beyond that, it will also affect us when it comes to the commodity we are selling abroad, other than crude and agriculture.”

Jide Pratt, chief operating officer (COO) of Aiona, and country manager, Tradegrid, said the recent drop in oil prices means lower revenues and lower foreign reserves for Nigeria, especially with the uncertainty of the naira-for-crude deal.

“We’ve seen an increase in foreign exchange (FX) rates, which does not help monetary or fiscal policy,” he said.

“Personally, I believe it does show that the benchmark for our budget leaves a lot to be desired. More importantly, we are on the road to a supplementary budget and loans.

“We need to sell off some assets to the private sector and enable growth in our economy to buffer low crude oil prices.”

Since the country depends largely on oil revenue, Pratt said “there can be no better time to really diversify.”

On Monday, Wale Edun, minister of finance, said oil price plunge would have an adverse effect on Nigeria, and to curtail any price effect, “we are intensifying efforts to ramp up crude oil production.”

“We are also focusing on non-oil revenue mobilisation by FIRS and Customs,” he said. “Budget adjustment and prioritisation where possible, and also innovative non-debt financing strategies.”Nigeria’s oil production fell to 1.46 million barrels per day (bpd) in February — below the 1.5 million quota set for the country by the Organisation of Petroleum Exporting Countries (OPEC).

For Nigeria, the fallout from Trump’s tariffs may stretch beyond oil exports.

Jumoke Oduwole, Nigeria’s trade minister, expects them to “present destabilising challenges to price competitiveness and market access” for Nigerian businesses in the non-oil sector.

Past Nigerian governments have pushed to diversify the country’s economy to reduce decades-old dependence on oil but without much success. The current moment now raises the urgency for Nigeria to strengthen quality control and traceability standards to gain acceptance into more global markets, Oduwole said.