Professor Iledare forecasts potential budget deficit, sees rising debt exposure amid oil-for-debt commitments
Dr. Oni says increased borrowing is likely, raising the debt burden, and repayment risks
Damcida foresees Naira devaluation risks if the oil price slump continues into Q3 2025
Oredola Adeola
With global crude oil prices dipping below $60 per barrel—the lowest level in four years—experts in the oil and gas industry have raised concerns over the serious implications for Nigeria’s economy.
They warned that the continued decline in oil prices, coupled with Nigeria’s heavy dependence on oil revenue, could disrupt fiscal projections, weaken the Naira, and increase the country’s debt exposure.
The industry analysts, in exclusive chats with Advisors Reports, emphasized that the ripple effects of falling oil prices could extend far beyond government finances, potentially destabilizing the Renewed Hope Agenda of President Bola Tinubu, hurting businesses across various sectors, and lowering the already-battered overall standard of living.
Checks by Advisors Reports revealed that Brent crude, a major benchmark for international oil prices, fell to $64.21 on April 7, 2025.
It hovered in the mid-to-high $60 range through mid-April before continuing its downward slide to $60.23 by May 5. A modest rebound saw prices edge up. up to around $62.67 by May 7, 2025.
On the other hand, West Texas Intermediate (WTI) crude—another global benchmark—was priced at $71.71 per barrel as of April 2.
It experienced a steady decline, falling to $58.29 by May 2, before making a slight recovery to $59.63 by May 7.
The experts attributed the volatility to ongoing market concerns over a potential oversupply driven by OPEC+ production increases, alongside fears of weakening demand due to global economic uncertainties and trade tensions.
According to them, “It’s no longer just OPEC versus shale—it’s OPEC versus Big Oil.” Major oil producers such as ExxonMobil, Chevron, Shell, and TotalEnergies are also ramping up production, further adding pressure to an already saturated market.
They emphasised that the implications for Nigeria are particularly dire, adding that the country’s national budget for 2025 is based on oil price projections within the $70–$80 per barrel range.
The experts posited that with prices now significantly below that benchmark, a budget deficit appears inevitable, paving the way for increased borrowing to finance the shortfall.
Professor Wumi Iledare, Professor Emeritus of Energy Studies at Louisiana State University, noted that while the current decline in global oil prices may offer some relief to consumers through lower petroleum product prices and reduced crude acquisition costs for refineries, the consequences are far more severe for oil-dependent economies like Nigeria.
He explained that Nigeria’s national budget is heavily reliant on oil revenue and is often based on high price assumptions and sometimes unrealistic production targets.
Iledare said, “As such, a sharp drop in crude oil prices poses a serious risk, potentially derailing budget projections and deepening fiscal imbalances.
“As a result, a budget deficit is virtually assured for 2025, which may lead to more debt to finance the deficits.
“Nigeria’s economy is indeed at risk when crude oil prices drop drastically. A drastic fall in oil prices will lead to reduced government income, impacting public services and infrastructure projects.
“It will bring pressure on the value of the Naira, leading to inflation. The widening budget deficits and increased borrowing will bring along with them slower economic growth and perhaps recession, particularly if diversification efforts continue to be limited and fiscal irresponsibility continues unabated,” he noted.
Professor Iledare further explained that Nigeria can cushion the extent of risk through economic diversification, fiscal measures, and the management of foreign reserves in the long run.
According to him, in the short term, fiscal discipline is crucial to reducing the risk of economic collapse.
He said, “A significant portion of future oil production has already been committed to debt repayments, so I would advise against pursuing further debt to ameliorate the current challenges.
“President Tinubu’s administration should consider proposing a supplementary budget with a more conservative oil price benchmark of $60–$70 per barrel, rather than the current $70–$80 range.
“The cost of governance remains excessively high, characterized by waste and the extravagant lifestyles of politicians at the expense of the governed. There is an urgent need to rethink the budgeting process by adopting more realistic and professionally grounded projections moving forward,” he warned.
Contrary to speculations that the declining prices could lead to a drop in pump prices across the country, Iledare stated that the price of petroleum products in Nigeria remains high due to persistent market failures.
He said, “These failures are partly rooted in the perception of economic goods and services, such as petroleum products and electricity, as public goods.
“This perception often leads the government to intervene in ways that exacerbate pricing distortions.
“The market structure in Nigeria is anticompetitive, with dominant firms vying for market share and producer surplus,” the renowned petroleum economist stated.
He further emphasised that a more appropriate pricing mechanism would be price modulation, especially given the government’s current strategy of using imports to pressure domestic refineries, which are struggling to operate effectively.
Dr. Ayodele Oni, Energy lawyer/Partner at Bloomfield law practice, in his reaction, stated that the slump in oil prices, which significantly determines Nigeria’s foreign exchange earnings, has added further pressure on the Naira, which already faces strain from capital outflows and inflationary pressures.
He said, “The continuous decline in crude prices may reduce Nigeria’s external reserves and restrict the Central Bank of Nigeria’s capacity to defend the local currency.
“Also, the government may turn to borrowing, both domestic and foreign, raising the national debt burden and exposing the country to repayment risks.
“Consequently, it is not farfetched to say that the Nigerian economy is at a great risk. This adversity not only affects the nation’s income but also, as stated earlier, may significantly increase the debt exposure of the country.
He further explained that the effect of this fall on the Naira throws the nation’s revenue projections and exchange stability into disarray, thereby affecting not only the government but every sector, business, and standard of living as a whole.
Dr Oni said, “It has been reported that the recent gains in net FX inflow ($15.2 billion in Q1) may not hold if oil receipts continue to slide. This decline in oil prices will significantly cause a decrease in the nation’s revenue.
“For instance, the sharp decline in oil prices from mid-2014 to early 2016, when prices fell from over $100 per barrel to under $30, had a devastating impact on Nigeria’s economy.
“The result was a recession in 2016, the first in decades. Government revenues fell sharply, leading to budget deficits, cuts in public spending, and a reduction in foreign reserves,” he said.
Commenting on measures that should be taken to fund the budget and stabilise Naira, Dr. Oni said, the decline in oil prices underscores the fragility of an economy heavily reliant on a single commodity and highlights the urgent need for fiscal diversification and structural reform.
He said, “There is an urgent need to expand the nation’s non-oil revenue sources. Agriculture, which was once the backbone of Nigeria’s economy, has seen some revival, but it still lacks the scale to replace oil as the primary source of revenue and employment.
“The non-oil sector, including manufacturing and technology, holds promise but remains underdeveloped.
“Also, the government may leverage public-private partnerships for infrastructural development to reduce budget pressure and further improve the business environment to attract investors, both locally and internationally.
“Equally important is the need to cut wasteful public spending by streamlining government agencies and improving efficiency across the public sector,” he said.
The energy lawyer, therefore, stated that despite a reduction in global crude prices, petroleum products in Nigeria are still high due to several factors.
“Firstly, Nigeria has limited refining capacity and thus imports petroleum products that its refining capacity cannot satisfy. With importation, there are added costs of shipping, insurance, etc.
“Secondly, the value of the Naira is currently low against the US dollar, and thus importers face higher costs. The drop in global crude prices also further exacerbates the fluctuation of the Naira.
“Lastly, due to the removal of subsidy in 2023, prices are no longer cushioned by the government and thus reflect international market prices and are adjusted based on import costs, supply, demand, and other economic factors,” Dr. Oni said.
Dr. Ahmad Damcida, CEO/Managing Director, Energy Culture, stated that the recent fall in global crude oil prices is a reflection of broader structural and geopolitical dynamics.
According to him, “Currently, global oil price volatility is being driven significantly by trade tensions, particularly between China and the United States.
“China’s retaliatory measures have led to dampened demand for hydrocarbons in the U.S., affecting the broader trajectory of economic growth there.
“Any decline in U.S. economic productivity has a direct impact on hydrocarbon consumption, and that, in turn, depresses global oil prices.
“For countries like Nigeria, this situation presents serious economic implications.
Nigeria remains heavily reliant on oil revenues to finance its national budget, despite efforts to diversify its economy. A drop in global oil prices translates into reduced government revenue, which increases economic volatility due to our dependence on hydrocarbon exports.
“To maintain macroeconomic stability, a country like Nigeria must ensure a minimum of nine months of foreign exchange (FX) import cover.
“This means that reserves should be sufficient to meet FX demands for imports over nine months.
“This benchmark is based on global trade cycles, which typically function in quarterly terms, and on financial instruments like Letters of Credit, which average a 90-day maturity.
“Nine months of FX reserves are viewed as a psychological and economic safe zone for fiscal and monetary planning.
“At present, Nigeria reportedly maintains more than nine months of FX reserves.
“However, if crude oil prices continue to fall for a sustained period, possibly through August or September, this buffer could be eroded.
“If reserves dip below the nine-month threshold, we would likely see speculative pressure on the Naira and a natural devaluation to balance supply and demand. In such a case, the exchange rate may cross the N1,800/$1 mark,” Damcida noted.
He further explained that Nigeria must service external debts, including Eurobonds issued during the Buhari administration, some of which are nearing maturity.
He said, “The Debt Management Office (DMO) must begin provisioning for repayments at least six to ten months ahead of time.
“Any failure to do so risks damaging investor confidence, and given Nigeria’s strategic role in the West African region, a default, similar to Ghana’s recent experience, could trigger regional instability.
Damcida further explained that petroleum product pricing in Nigeria is influenced by two main factors: the global price of crude oil and the prevailing exchange rate.
He said, “Even with local refining efforts, product pricing in Naira remains highly sensitive to fluctuations in the FX market. For example, a decline in crude oil prices to $40 per barrel could push the exchange rate above N1,800 per dollar, increasing the local cost of diesel (AGO) and petrol (PMS).
The conversion of petroleum products from tonnes to litres uses density metrics—PMS typically ranges between 1325 and 1341, while AGO is around 1164, based on average product density and the density of water (1,000).
“This conversion directly links FX rates to daily product pricing, further complicating the pricing structure in a volatile market.
“It’s crucial to understand that a drop in global crude oil prices does not necessarily result in lower local petroleum product prices.
“The impact of currency devaluation and constrained FX inflows can offset any benefit from lower crude prices.
“Moreover, after deducting external debt service and NNPC’s cash calls from dollar revenues, Nigeria is left with a significantly reduced amount for domestic obligations.
“Another critical factor is the country’s actual crude oil entitlement. While Nigeria may be producing 1.7 million barrels per day, only about 500,000 barrels may accrue to the federation after accounting for joint venture obligations, forward contracts, and other deductions, many of which date back to agreements signed under the previous NNPCL leadership.
“Therefore, the perception that the entire crude production enters Nigeria’s coffers as revenue is misleading,” Damcida stated.
He therefore emphasised that accurate and transparent data is essential for realistic economic planning, adding that the road ahead requires prudent FX management, enhanced fiscal discipline, and clear strategies to build resilience against global oil market shocks.
