After years of breaking free from dynamics in the crude oil market, Nigeria’s naira has once again become a petro-currency.
Petro-currencies are currencies of oil-producing nations which tend to rise in value against other currencies when the price of oil rises and fall when it falls.
Since the floating regime began in June 2023, the naira has become even more volatile in response to crude oil price movements.
Simply put, when oil prices rise, the naira gains some strength, but when they fall, the currency depreciates. The naira ended months of stability with a slight decline in the official market last week amid lower oil prices.
For several years, the Nigerian National Petroleum Company Limited (NNPCL) has not made significant remittances to the federal government due to subsidy payments on Premium Motor Spirit (PMS). During this period, the exchange rate was also largely fixed by the Central Bank of Nigeria (CBN). However, according to Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, NNPCL is projected to remit $10 billion to the federal government in 2025.
Should the government be worried about falling oil prices?
Perhaps, but the real question is: who stands to gain or lose?
The 2025 budget was benchmarked at $75 per barrel of crude oil, yet the current reality places oil prices $1.66 below this projection. Similarly, oil production was estimated at 2.12 million barrels per day (mbd), but actual production stood at 1.54 mbd in January 2025 and 1.47 mbd in February 2025, according to CBN data. On average, Nigeria’s domestic production has already fallen short by 0.62 mbpd, further straining FX inflows.
This trend becomes even more concerning when examining Nigeria’s foreign trade statistics for 2024. Crude oil accounted for 76.48 percent of total exports over the past five years (2020-2024). For a country that international institutions and economic experts have long urged to diversify, this goal remains largely aspirational rather than reality. A closer look at trade data suggests that many improvements in export figures are largely driven by devaluation rather than structural economic progress.
Earlier this year, at the PwC & BusinessDay Executive Roundtable on Nigeria’s 2025 Budget and Economic Outlook, Oyedele expressed concerns—not about oil production levels, but about crude oil prices.
“I’m more concerned about the price than the volume,” Oyedele noted, highlighting the risks associated with declining crude oil prices. While Nigeria’s oil production levels, including condensates, are approaching 1.9 million barrels per day, he pointed out that global factors, particularly U.S. drilling policies under Trump, could drive prices lower.
According to Oyedele, lower oil prices would reduce government revenue, placing additional fiscal pressure. However, he also suggested that this could be offset if Nigeria boosts productivity in other sectors. “At the end of the day, if you can trigger productivity, everything is then okay,” he remarked.
Despite concerns over revenue shortfalls, Oyedele argued that lower oil prices could benefit Nigerians through improved affordability and quality trade-offs. “Which, to be honest, overall I think is good for Nigeria because there’s a pay-off on quality trade-off,” he explained. In essence, while government revenue may decline, consumers and businesses could benefit from lower fuel and energy costs, potentially easing inflationary pressures.
The exchange rate factor: Will a weaker naira wipe out petrol price gains?
Some analysts argue that FX losses from falling oil prices could erode the benefits of lower petrol prices. Their concern is that a depreciating naira would increase crude oil import costs, which could prompt an upward revision of domestic petrol prices.
However, this assumption does not entirely hold, as multiple factors influence exchange rate movements. While FX earnings from crude oil play a significant role, CBN policies are equally crucial. It is important to remember that the naira’s recent appreciation and relative stability have been largely attributed to reforms introduced by the Central Bank.
The Dangote effect and future petrol price trends
A combination of falling crude oil prices, exchange rate stability and economic scale have allowed Dangote Refinery to reduce its ex-depot price three times in 2025, to N890 and N825 in February, and further to N815 in March. This trend aligns with projections made by Bismarck Rewane, CEO of Financial Derivatives Company (FDC), who noted earlier in March: “So, generally, between now and June, we will see prices begin to decline. But after June, as things stabilise, depending on what happens in the global oil and currency market, we might begin to see some stabilisation.”
Given that 20 percent of FX pressures stem from oil exports and domestic refining has now commenced, falling crude oil prices may not significantly destabilise the Naira, even though it remains more exposed due to floating. The key will be how well Nigeria manages its economic fundamentals beyond oil dependency.
