Strong naira, FX reserves boost seen as oil prices rise 

The ongoing war between Israel and Iran has triggered a surge in global oil prices, a development expected to strengthen the naira and bolster Nigeria’s foreign exchange reserves.

Nigeria’s flagship crude oil grades, including Bonny Light and Escravos Light, are reportedly trading close to the crucial $80 per barrel mark, driven by heightened geopolitical tensions stemming from the escalating conflict between Israel and Iran.

The naira on Friday closed flat across FX market segments. At the Nigerian Foreign Exchange Market (NFEM) the naira closed at N1,549.35 per dollar. This represents slight depreciation compared to N1,539.72, marking a 0.6 percent loss, according to data from the Central Bank of Nigeria (CBN).

The local currency steadied at N1,605 in the parallel market, also known as the black market.

As at the last update on June 11, 2025, Nigeria’s external reserves declined to $38.02 billion from $38.04 billion as of June 10,2025, data from the CBN indicated.

Ayodele Akinwunmi, senior relationship manager at FSDH Merchant Bank, said the current administration appears to be maintaining its policy stance, particularly in managing foreign exchange, and he expects that approach to continue.

He noted that while the situation is evolving, there are multiple layers to consider when assessing the impact of the Israel-Iran conflict on the naira.

According to him, if global oil prices rise as a result of the conflict, it could mean increased revenue for the Nigerian government. This, in turn, may improve the supply of foreign exchange in the country. However, he also pointed out a potential downside: higher oil prices could lead to an increase in the local pump price of petroleum products such as PMS, which would push up domestic costs and create some inflationary pressure.

He observed that the benchmark oil price for Nigeria’s 2025 budget is set at around $75 per barrel. If oil prices rise to or above that level, fiscal deficits may widen. But if oil production also increases, it could help moderate that deficit. In that scenario, the burden on domestic crude allocation like the 36 barrels per day earmarked locally would also need to be managed more efficiently.

Akinwunmi emphasised that the efficiency of key institutions will be crucial in mitigating any shocks. “If institutions are working efficiently, the effect of oil price fluctuations whether up or down on the Nigerian economy could be minimal,” he explained. He added that this is where ongoing reforms aimed at improving economic management become particularly important.

Aminu Gwadabe, president of the Association of Bureaux De Change Operators of Nigeria (ABCON), warned that the ongoing war could lead to severe humanitarian crises and widespread global economic disruptions if not swiftly and effectively contained. “The experiences in Gaza are still fresh in our minds,” he said.

Speaking on the potential impact of the conflict on the naira, Gwadabe noted that, as an economy heavily reliant on petrodollar inflows and given Nigeria’s strategic geographical position, the situation could actually strengthen the country’s foreign exchange buffers. According to him, higher oil revenues may enhance the Central Bank of Nigeria’s capacity and liquidity to defend the naira, improve foreign reserves, and support the balance of payments position amid the persistent foreign exchange scarcity.

The ongoing conflict between Israel and Iran is already sending ripples across global commodity markets, particularly in the oil sector. According to Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), the escalation has both positive and negative implications for Nigeria, given the country’s heavy reliance on crude oil exports for foreign exchange.

“Iran is a major oil producer, and it operates from a region that is critical to global oil supply,” Yusuf said. “The strikes and military tensions we’re witnessing are bound to disrupt production and create significant uncertainty around oil output.”

He explained that the situation is further compounded by existing sanctions on Russia, another key global oil supplier. “These overlapping concerns are already affecting crude oil prices,” he noted, citing that the price recently climbed to around 74 dollars per barrel. “It shows how sensitive the global oil market is to geopolitical developments.”

If the crisis lingers, Yusuf believes oil prices could soar even higher. “Crude could go as high as 100 dollars per barrel or even more if tensions escalate,” he said.

For Nigeria, such a spike comes with a mix of benefits and challenges. “The positive side is that higher oil prices will boost our foreign exchange earnings, which is good for our external reserves,” Yusuf explained.

“If we can push production closer to 2 million barrels per day or even maintain the current level of about 1.6 million, we’ll see an improvement in FX inflows. This could strengthen the naira, as the Central Bank would be in a better position to defend the currency.”

A stronger naira, he added, could help moderate inflation by reducing import and production costs. “It would be good news for the broader economy and could ease pressure on manufacturers and service providers.”

However, Yusuf warned of serious downside risks, particularly on the energy cost front. “We’re likely to see spikes in the prices of petrol, diesel, aviation fuel, and gas,” he said. “That’s a major concern for households and businesses that rely on these energy sources for power and production.”

While the recent start of operations at the Dangote Refinery is a welcome development, Yusuf cautioned that it doesn’t insulate Nigeria from global oil price volatility. “Dangote still has to pay for crude whether it’s imported or locally sourced and that cost is tied to international oil prices. So, even domestic fuel prices will be affected.”

He said that while Nigeria stands to gain from higher oil revenue, the country must brace for inflationary pressures driven by soaring energy costs. “It’s a double-edged sword. The gains in reserves and exchange rate stability are real, but so are the risks to cost of living and business operations,” Yusuf said.