There are four things the federal government can do to reduce the impact of the oil price crash on the economy.
Analysts say the government must now wean itself off oil, beef up its buffers, tighten adjustment mechanisms and diversify revenue streams.
From decade to decade, Nigeria is forced to relearn the same hard lesson: When oil prices fall, the economy suffers. Government income drops, budget deficits grow, and the country borrows more money to fill the gap.
The crashes of 1986, 2008, 2014, and now 2025 have each exposed just how fragile the country’s finances remain. Yet this time, there are small signs that Nigeria could finally break the cycle if it acts fast and decisively.
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1986: a global glut and hard lessons
In 1986, oil prices collapsed from around $27 to less than $10 a barrel. The reason was simple: Too much supply. Non-OPEC countries like Mexico and North Sea producers ramped up output, while Saudi Arabia, frustrated with OPEC members breaking quotas, opened its taps fully. Demand was also weak, held back by slow global growth.
For Nigeria, the shock was devastating. Oil accounted for more than 90 percent of export earnings. Revenues dried up almost overnight. Inflation rose sharply, reaching around 5.4 percent in 1986, but it worsened after the crisis, surging to about 10.2 percent in 1987 and further to 38.3 percent by 1988. Foreign debts piled up.
In desperation, the government imposed strict foreign exchange controls and eventually turned to the World Bank and the International Monetary Fund (IMF) for assistance, leading to the launch of the Structural Adjustment Programme (SAP) in mid-1986—a set of harsh reforms that deepened economic hardship for millions.
2008: Global financial crisis, temporary relief
In 2008, the global financial crisis triggered another oil price crash. After peaking at over $140 per barrel in July, oil prices plunged to around $40 by December as demand collapsed and global markets panicked.
Nigeria, unlike in 1986, was slightly better prepared. Years of relatively high oil prices had allowed the government to build an ‘Excess Crude Account,’ which reached $21 billion at its peak. This savings’ buffer helped cushion the impact of the crash, stabilising the economy and preventing immediate fiscal collapse.
However, the lesson was short-lived. By the early 2010s, the excess savings had been largely depleted, and spending continued to rise as oil prices recovered. Structural reforms were delayed, and diversification efforts remained shallow.
2014: Shale boom and another wake-up call
Fast forward to 2014, oil traded above $100 a barrel until the U.S. shale revolution reshaped the market. New drilling technologies pushed U.S. output sharply higher.
Again, OPEC, led by Saudi Arabia, refused to cut production, gambling that low prices would crush shale producers. Instead, prices crashed below $50 in just six months.
Nigeria was caught out once more. The naira was devalued. Inflation spiked. Many state governments could not pay workers. By 2016, the economy had slid into its first recession in 25 years.
“A lot of Nigeria’s current predicament could have been avoided,” said Kevin Daly from Aberdeen Asset Management in 2016. “The country is so reliant on oil precisely because its leaders haven’t diversified the economy. More recently, they have tried, and failed, to prop up the naira, which has had a ruinous effect on the country’s foreign exchange reserves and any reputation it might have had of being fiscally responsible.”
Read also: Oil prices fall to four-year low as OPEC+ hikes production
2025: a familiar shock, but faint glimmers of hope
Now, in 2025, history is repeating itself, but the dynamics are shifting. Oil prices have fallen below $60 per barrel, well under Nigeria’s budget benchmark of $75, driven by fears of global slowdown, trade tensions, and political uncertainty.
The government has made some progress. Fuel subsidies, long a drain on public finances, have been scrapped. Agriculture, mining, and tech sectors are slowly growing.
Yet the fundamentals are worrying. The budget deficit, already at N18.64 trillion, is likely to widen further as oil revenues shrink. Debt pressures are mounting. The naira remains weak. Inflation, which had eased briefly, is rising again, now at 24.23 percent, according to the latest figures from the National Bureau of Statistics (NBS).
Most troubling of all is that government revenues remain dangerously tied to oil, despite decades of warnings.
What must change to break the boundaries
The four shocks make one lesson clear: Dependence on volatile oil leaves Nigeria repeatedly vulnerable.
For decades, the government assumed high oil prices, building budgets and social programmes around them. When that assumption failed, the economy spiralled. Today, oil still accounts for a majority of export and fiscal revenue. Nigeria needs to break this vicious cycle.
According to economists, future budgets should embed more conservative price estimates. For example, recent budgets used $75 per barrel; the actual price was often 15 percent lower. Going forward, policymakers should assume oil nearer $55–$60 and avoid procyclical spending increases, experts say.
Second, Nigeria must beef up its buffers. In the 1980s, it had scant reserves. By 2008, an ‘Excess Crude Account’ had reached $21 billion, according to IMF records, helping cushion that crisis. But those savings were largely depleted in the 2010s. Rebuilding a reserve fund when prices are above breakeven would blunt the next downturn.
Third, the adjustment process itself should be faster and fairer. Past experiences show that delaying painful reforms only makes the eventual correction larger. Subsidies, exchange controls, and multiple exchange rates did cushion consumers at first, but ultimately fuelled inflation and widened deficits in 1986 and 2014.
Central bank tightening and market-determined exchange rates can help stabilise the naira and prices. According to the IMF recommendations, any policy savings such as those from ending fuel subsidies should finance targeted cash transfers or other relief for the poor to share the burden more equitably.
Finally, governance and diversification remain critical. Corruption and leakages have squandered previous oil windfalls, making each shock feel worse. Strengthening transparency such as fully funding infrastructure projects on time and reducing waste could help insulate growth. Accelerating non-oil sectors like agriculture, manufacturing, and digital services would also spread risk.
