This is a steep drop in crude oil prices largely due to U.S. President Donald Trump’s tariffs have been squeezing budgets of emerging market oil exporters, including that of Nigeria.
Concerns about the impact of a tit-for-tat trade war on global growth and demand for oil sent Brent crude prices plummeting by more than 20% within a week to a four-year low after Trump announced his sweeping tariffs on April 2.
Oil accounts for about 90% of Nigeria’s exports, and crude earnings were set to fund 56% of this year’s budget.
The federal government forecasted oil at $75 a barrel in the 2024 budget; however, it has been forced to change its plan
“We are going back to the drawing board to look at our budget all over again,” Finance Minister Wale Edun told reporters last week.
The drop in oil prices forced the Central Bank of Nigeria to sell dollars to authorised dealers to lower the shock against the naira.
In a circular on Sunday, CBN said it has facilitated market activity on Friday, with the provision of $197.71 million through sales.
According to the apex bank, the move is in line with its commitment to ensuring adequate liquidity and supporting orderly market functioning, adding that the measured step aligns with its broader objective of fostering a stable, transparent, and efficient foreign exchange market.
The drop in the price of crude oil is also undoing frontier markets debt trades that had held up for at least a year, JPMorgan said in a research note.
It cited the Nigerian carry trade, which involved investing in the oil exporter’s Treasury bills on bets the naira currency will not depreciate quickly against the dollar. Investors now risk incurring losses if the lower crude price hits the naira.
