The ongoing global trade war, particularly between the United States and several developed economies, has intensified the decline in crude oil prices, posing a significant threat to Nigeria’s 2025 budget. Bonny Light, Nigeria’s premium crude oil grade, hit a new low of $70.3 per barrel over the weekend, marking a 13% decline since the 2025 budget was passed and falling 6.7% below the budget benchmark of $75 per barrel. Analysts predict the downward trend will continue this week, further straining Nigeria’s revenue projections.
The renewed decline in oil prices began early last week when U.S. President Donald Trump signaled his intention to sustain tariff wars with major global economies. This development coincided with the decision by the Organization of the Petroleum Exporting Countries and its allies, including Russia (OPEC+), to increase oil output for the first time since 2022. The combination of these factors has exerted additional pressure on crude oil prices, exacerbating Nigeria’s fiscal challenges.
Nigeria’s 2025 budget relies heavily on oil revenue, with N20.35 trillion (56% of federal revenue) expected to come from oil out of a total revenue target of N36.35 trillion. The decline in crude oil prices has raised concerns about a potential increase in the budget deficit and the need for additional borrowing to fund government spending. Industry experts warn that the situation could worsen if oil prices continue to fall.
International energy analysts attribute the recent drop in oil prices to several factors, including a larger-than-expected buildup in U.S. crude oil stockpiles and concerns over OPEC+ plans to increase production. President Trump’s imposition of a 25% tariff on Canadian and Mexican goods, along with a doubling of tariffs on Chinese imports to 20%, has further rattled global markets. These tariffs have sparked fears of a slowdown in economic growth and a corresponding reduction in energy demand.
A Reuters survey revealed that Nigeria is currently pumping 70,000 barrels per day (bpd) above its OPEC+ quota, with total OPEC output rising to 26.74 million bpd in February. Nigeria’s increased production, driven by higher exports and domestic usage at the Dangote refinery, has contributed to the global oversupply, further depressing prices.
Foreign news agencies reported that Brent crude sank to $68.33 per barrel, its lowest level since December 2021, while U.S. crude futures touched $65.22, the lowest since May 2023. The U.S. Energy Information Administration (EIA) noted that crude inventories rose by 3.6 million barrels to 433.8 million barrels last week, far exceeding analysts’ expectations. This buildup, coupled with seasonal refinery maintenance, has added to the downward pressure on prices.
Ashley Kelty, an analyst at Panmure Liberum, highlighted that the imposition of tariffs by the U.S. has sparked swift reprisals from affected nations, increasing concerns over a global economic slowdown and its impact on energy demand. JP Morgan analysts warned that a 100-basis-point slowdown in U.S. GDP growth could reduce global oil demand growth by 180,000 bpd.
For Nigeria, the key issue lies in the government’s unrealistic budget assumptions regarding oil prices and production levels. Experts argue that these flawed projections lead to poor budget performance and increased borrowing. Prof. Wumi Iledare, a Professor Emeritus in Petroleum Economics and Policy Research, noted that the decline in crude oil prices could reduce government revenue, impacting funding for critical projects. However, he expressed confidence that prices would rebound once the uncertainty surrounding U.S. tariffs subsides.
Oil policy expert Henry Adigun criticized the government’s recurring error of making unrealistic projections, stating, “Every year they make false assumptions and projections that are unrealistic. This leads to poor budget performance because they don’t have the fundamentals correctly.” He warned that the government would likely resort to additional borrowing, increasing the budget deficit.
Dr. Dauda Garuba, former Technical Adviser to the Nigeria Extractive Industries Transparency Initiative (NEITI), echoed these concerns, stating that the decline in oil prices would force the government to borrow more, pushing the country further into poverty and underdevelopment. On a more optimistic note, Joe Nwakwue, Partner at Zera Advisory, highlighted the potential for non-oil revenue to partially offset the shortfall in oil revenue, though he acknowledged that achieving the projected production volumes would be challenging.
As Nigeria navigates these challenges, the global oil market remains volatile, with the country’s fiscal stability hanging in the balance. The situation underscores the need for more realistic budget assumptions and a diversified revenue base to mitigate the impact of external shocks on the economy.
