The ongoing global tariff war, led by the United States under President Donald Trump, has intensified pressure on crude oil prices, posing a major threat to Nigeria’s revenue targets for 2025.
Bonny Light, Nigeria’s premium crude oil, fell to $70.3 per barrel over the weekend, marking a 13% drop since the government approved the 2025 budget. This price is also 6.7% below the $75 per barrel benchmark set in the budget, raising concerns about revenue shortfalls and the likelihood of increased borrowing.
Why Oil Prices Are Dropping
The decline in oil prices started last week after President Trump announced plans to continue his tariff war with major economies. At the same time, the Organisation of the Petroleum Exporting Countries (OPEC) and its allies (OPEC+) agreed to increase oil production for the first time since 2022, further driving down prices.
Energy analysts predict this downward trend will continue throughout the week, making it even harder for Nigeria to meet its revenue targets.
Impact on Nigeria’s Budget
Nigeria’s ₦36.35 trillion revenue projection for 2025 heavily depends on oil earnings, with ₦20.35 trillion (56%) expected to come from crude exports. If oil prices remain low, the government could face a larger budget deficit, forcing it to borrow more money to keep public spending afloat.
According to JP Morgan analysts, a 1% slowdown in the U.S. GDP growth rate could cut global oil demand by 180,000 barrels per day, making the situation worse for oil-exporting countries like Nigeria.
Nigeria’s Oil Output and OPEC Quotas
A Reuters survey revealed that Nigeria is currently pumping 70,000 barrels per day above its OPEC quota. While this extra production could help offset revenue losses, it may also attract penalties from OPEC for exceeding limits.
OPEC’s overall production rose by 170,000 barrels per day in February, with Iran and Nigeria contributing the most to this increase. Iran’s production reached 3.3 million barrels per day, the highest since 2018, while Nigeria’s output also increased due to higher exports and local refining at the Dangote Refinery.
Market Reactions and Future Projections
Brent crude, the global oil benchmark, fell to $68.33 per barrel, its lowest level since December 2021. U.S. crude futures also dropped to $65.22 per barrel, a level last seen in May 2023.
The U.S. Energy Information Administration (EIA) reported a 3.6 million barrel increase in U.S. crude inventories last week, far exceeding expectations. This oversupply, combined with reduced demand, has put additional pressure on oil prices.
Energy analyst Ashley Kelty warned that the trade war between the U.S. and China, Canada, and Mexico could slow global economic growth, further weakening oil demand.
Experts Weigh In
Professor Wumi Iledare, an expert in petroleum economics, believes the market will eventually stabilise:
“There’s an oversupply of crude oil, especially in the U.S., because demand is lower than expected. This is putting downward pressure on prices. However, once the trade war situation clears up, I expect oil prices to bounce back.”
On the other hand, Henry Adegun, CEO of AHA Consultancies, criticised the Nigerian government’s unrealistic budget assumptions:
“Every year, the government overestimates oil production and revenue. When things don’t go as planned, they resort to borrowing. This cycle of poor budgeting must stop.”
What’s Next for Nigeria?
With oil prices struggling, Nigeria may need to look beyond crude exports to fund its budget. Joe Nwakwue, a partner at Zera Advisory, suggested that non-oil revenue sources could help bridge the gap:
“The government is unlikely to meet its oil revenue targets, but improvements in non-oil revenue generation could make up for some of the shortfall.”
Still, the outlook remains uncertain. Unless oil prices recover or Nigeria diversifies its revenue streams, the country may be headed for more borrowing and a wider budget deficit.
