Nigeria is poised to miss out on potential revenue gains stemming from the recent surge in global oil prices, driven by escalating Iran-Israel tensions, due to persistent production shortfalls, limited refining capacity, and heavy reliance on fuel imports, according to a new report by SB Morgen.
Brent crude rose over 4 percent to $74.23 per barrel, briefly exceeding the country’s 2025 budget benchmark of $73 per barrel. In theory, such a price spike should ease fiscal pressures and enable greater government revenue. However, SB Morgen’s analysis shows that structural weaknesses continue to undermine these potential benefits.
Nigeria’s oil production — which includes condensates — currently stands at roughly 1.5 million barrels per day (bpd), far below its peak potential of nearly 2 million bpd. According to data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), production dipped for a second consecutive month, falling from 1.48 million bpd in April to 1.45 million bpd in May, adding to doubts about the federal government’s ability to maximise its export profits.
Read also; Naira gains, external reserve decline despite oil pricerally
The downturn reverses the progress made in the first quarter of the year and further dampens prospects for strengthening the country’s financial position at a time when higher prices could translate into greater export earnings.
“Higher prices don’t automatically translate into higher revenues for Nigeria due to production underperformance and long-term contracts that are locked in at lower prices,” SB Morgen explained in its report.
The report further highlights the unfavourable structure of Nigeria’s crude sales. A significant portion of its output is committed through forward contracts or swaps, frequently secured at prices well below current market levels, a practice originally meant to enable stability, but which is now dampening potential profits in a rising price environment.
Additionally, while other oil-producing nations, such as Saudi Arabia and India, are poised to maximise their profits by adding value through refining or by meeting growing domestic energy needs, Nigeria’s heavy reliance on imported petroleum products leaves it vulnerable to price hikes. The removal of the petrol subsidy in May 2023 means that domestic prices for petrol and diesel are closely tied to international benchmarks, further fueling transport, food, and energy costs across the country.
Read also; Ghana shuts embassy in Iran amid rising Iran-Israel tensions
“Rising fuel prices will translate into higher transport, food, and electricity costs. This could further aggravate inflationary pressures in a country already reeling from economic strain,” SB Morgen said in its report.
Nigeria’s inflation rate, meanwhile, shows no sign of easing. During the 2022 Ukraine conflict — when oil prices surpassed $121 per barrel, inflation still jumped to 18.6 percent. In 2023, it spiked further to 26.7 percent, even while oil prices remained above $90 per barrel following OPEC+ cuts.
The International Monetary Fund (IMF) now projects that inflation will accelerate further, reaching 35.1 percent by May 2025, up from 33.7 percent in April 2024, fueling growing worries about the cost of living for ordinary Nigerians.
The report concluded that “the oil windfall is an illusion unless Nigeria ramps up its production, increases its refining capacity, and builds buffers against external shocks.” Without these policy and operational fixes, higher oil prices may bring little financial respite for Africa’s largest oil producer, instead adding to its growing economic hardships.
Join BusinessDay whatsapp Channel, to stay up to date
Open In Whatsapp
