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Nigeria’s naira, dollar inflows in danger as Trump pressures OPEC to cut oil prices

NIGERIA’s naira and revenue are threatened as the erratic United States President, Mr Donald Trump, piles pressure on the Organization of the Petroleum Exporting Countries (OPEC) to reduce oil prices.

“I am also going to ask Saudi Arabia and OPEC to bring down the cost of oil. You got to bring it down, which, frankly, I’m surprised they didn’t do before the election. I was a little surprised by that. If the price came down, the Russia, Ukraine war would end immediately,” Trump told the global business elite gathered at the World Economic Forum (WEF) in Davos, Switzerland, on January 23.

Mr Trump wants to end the Russia-Ukraine war but he is struggling to get Russian President, Mr Vladimir Putin, to agree to a ceasefire. He believes that Mr Putin is deliberately continuing with the war to raise oil prices and earn more revenue. Russia is the world’s second-largest producer of natural gas, behind the United States, and has the world’s largest gas reserves. It is the world’s largest gas exporter, according to the International Energy Association (IEA).In 2021 the country produced 762 billion cubic mters (bcm) of natural gas, and exported approximately 210 bcm via pipeline. Russia, a member of OPEC+, exports about 6.6 million barrels of oil and oil products per day.

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 Citi predicts that oil price may rise this year on the back of the wars in Ukraine and Middle East.

“The oil outlook could see heightened, sustained geopolitical risks in Iran/Russia-Ukraine potentially wipe out the 2025 oil balance surplus, but the Trump administration appears intent on dealmaking,” the bank said in a note. However, the Middle East crisis is subsiding, with
Israel and Hamas’ recent agreement to a ceasefire.

Mr Putin believes he is winning the three-year invasion against Ukraine and does not need to stop at this point. But Mr Trump is planning to get his OPEC allies – Saudi Arabia and the United Arab Emirates (UAE) – to pump more oil, create market glut and lower oil prices.

Nigeria in peril

If Mr Trump succeeds, oil price may fall below $40 per barrel, which will hurt Nigeria’s $75 per barrel target in the 2025 budget – which is ambitious in the first place. Should that happen, Nigeria’s dollar inflows will tank, thereby reducing dollar availability and piling more pressure on the naira.

Nigeria relies on oil for over 80 percent of its revenues, and any attempt to create an oil glut will hurt foreign exchange inflows and the nation’s earnings, according to economists.

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“With lower oil prices, Nigeria’s foreign exchange earnings will fall, leading to more acute dollar shortages. This will weaken the naira and, perhaps, force the Central Bank of Nigeria (CBN) to dip its hand in the foreign reserves to support it. This is just the classical case, and I hope that does not happen,” said a Lagos-based development economist, Dr Onwe Ndinabo.

Trump’s plan to drill more oil

Mr Trump’s stronger dollar policy will weaken the naira and make imported good more expensive for Nigeria, analysts say. He plans to implement some of his fossil fuels policies, which will lead to petrol glut and low dollar and naira earnings for Nigeria.

“America will be a manufacturing nation once again, and we have something that no other manufacturing nation will ever have, the largest amount of oil and gas of any country on Earth, and we are going to use it. We will drill, baby, drill,” Mr Trump said in his inauguration speech at the US Capitol last Monday.

The US President plans to “fill the American strategic reserves up again, right to the top” and export energy all over the world. He announced the establishment of the national energy emergency last Monday, quitting the Paris climate change agreement that is focused on tackling rising temperatures.

He wants to “drill, baby, drill” and put more American oil in world’s market. BusinessDay quoted Chief Executive Officer of Renaissance Capital Africa, Mr Samuel Sule, as saying that the Trump-led administration would be “supportive of oil industry expansion and less focused on climate mitigation.” 

“As such, a potential increase in oil supply resulting from policy changes could lead to lower prices, which will have an impact on oil producers such as Nigeria,” he was quoted as saying. 

Nigeria has failed to meet its oil production targets for years due to underinvestment, theft and government’s inability to fully implement the Petroleum Industry Act (PIA).

The nation fell short of its revenue target by nearly 30 percent in the second quarter (Q2) of 2024, pushing the budget deficit from N3.88 trillion to N4.5 trillion, FIJ reported.

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Nigeria’s public debt burden hit N134.3 trillion, rising by N12.6 trillion in three months to June 2024, according to the most recent data published by the Debt Management Office (DMO).

Nigeria’s inflation stood at 34.80 percent in December 2024 from 28.92 percent in December 2023. High prices erode people’s purchasing power and ridicules the naira’s value, say analysts.

Nigeria targets 2.06 million per day oil production in the 2025 budget – which is equally ambitious. The naira will be at the receiving end if the global politcs tilts towards lowering oil production or its price, leading to acute dollar shortages that have been the norm since 2016.

“Nigeria’s economy relies heavily on oil exports, and Trump’s pledge to flood the global market with American oil seriously threatens the country’s financial stability,” SBM Inteligence said in its recent report.

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