The ongoing trade war between the United States and other global economies has further pressured crude oil prices, posing a significant threat to Nigeria’s 2025 budget projections.
As of the weekend, Bonny Light, Nigeria’s premium crude oil grade, dropped to $70.3 per barrel, marking a 13% decline since the budget was passed and 6.7% below the 2025 budget benchmark of $75 per barrel. Industry experts predict that the downward trend will persist.
US Tariff Hike and OPEC+ Output Increase Impact Prices
The latest price slump began last week when U.S. President Donald Trump announced plans to sustain trade tariffs across major economies. Simultaneously, the Organization of the Petroleum Exporting Countries (OPEC+) and its allies, including Russia, decided to increase crude output for the first time since 2022, further driving prices downward.
Oil analysts told Financial Vanguard that 56% of Nigeria’s projected federal revenue (N20.35 trillion) is expected from oil, based on the total N36.35 trillion revenue target. The decline in crude oil prices raises concerns about a wider budget deficit and increased borrowing to bridge the gap.
Market Reactions: Rising US Crude Stockpiles and Global Impacts
According to Investopedia, oil prices plummeted following Trump’s 25% tariff on Canadian and Mexican goods and a doubling of tariffs on Chinese imports to 20%. Additionally, U.S. crude stockpiles grew beyond expectations, causing further price declines.
A Reuters survey also revealed that Nigeria exceeded its OPEC+ quota by 70,000 barrels per day (bpd), while Iran increased output by 80,000 bpd.
Energy Experts Warn of Budget Risks
Professor Wumi Iledare, an expert in Petroleum Economics, explained that high US crude inventories and reduced demand are driving the long-term downward trend. However, he expressed optimism, stating that prices will likely stabilize once U.S. tariff policies become clearer.
Oil policy expert Henry Adegun, CEO of AHA Consultancies, criticized Nigeria’s budget assumptions, stating:
“Every year, the government makes unrealistic oil price and production projections, leading to poor budget performance. Eventually, they resort to borrowing, increasing the deficit.”
More Borrowing Looms Amid Revenue Shortfall
Dr. Dauda Garuba, former Technical Adviser at NEITI, warned that declining oil revenue would push Nigeria toward more borrowing or poor budget implementation, exacerbating poverty and inequality.
On a positive note, Joe Nwakwue, Partner at Zera Advisory, highlighted an uptick in non-oil revenue, which may help cushion the shortfall. However, he expressed skepticism about achieving the 2.06 million bpd production target, given Nigeria’s current production capacity constraints.
What Lies Ahead?
The combination of global economic uncertainties, rising stockpiles, and trade tariffs suggests that Nigeria may face further fiscal challenges in 2025. Policymakers may need to explore alternative revenue sources to mitigate risks associated with fluctuating oil prices.