Nigeria eyes FX relief as oil prices surge on Middle East escalation

Boom! Brent crude is climbing again, and Nigeria’s foreign exchange market just might be able to catch its breath, at least for now.

Historically, Nigeria hasn’t benefited most during oil booms or gluts. Instead, it thrives during geopolitical crises, those tense global moments when supply gets disrupted and prices spike.

“Should Nigeria wish for war? Of course not. Morally, that would be indefensible. But can it afford to ignore the fiscal upside when prices soar? Also no.”

From the 1973 Arab oil embargo and the Iran-Iraq War in the 1980s to the current Israel-Iran tensions in 2025, Nigeria’s economic health has often mirrored unrest in the Middle East. Oil prices go up or down not just on supply and demand, but on the threat of missiles, embargoes, or blockades.

Should Nigeria wish for war? Of course not. Morally, that would be indefensible. But can it afford to ignore the fiscal upside when prices soar? Also no.

With oil accounting for over 90 percent of Nigeria’s foreign exchange earnings and funding key aspects of a budget meant to serve 220 million people, crude is more than just a commodity; it’s a national lifeline.

Oil prices react to Middle East unrest.

That paradox between moral caution and fiscal opportunity has once again come into sharp focus.

Following reports that Israel launched airstrikes on Iranian military facilities, Brent crude surged over 10 percent on June 12, briefly hitting $78 per barrel before settling at $74.

As of June 13, Brent traded at $70.23 per barrel, still far above levels seen earlier this year.

Fresh concerns emerged over the weekend after former U.S. President Donald Trump authorised strikes on three Iranian nuclear sites. Brent rose again to $77.01 per barrel at 5:28 p.m. Nigerian time on Sunday. WTI crude traded at $73.84, while Nigeria’s Bonny Light sold for $78.62.

Then, on June 23, 2025, the tension escalated further: Iran retaliated by launching a missile attack on a U.S. military base in Qatar, tightening global oil markets even more. The move immediately reignited fears of direct U.S.–Iran confrontation, pushing oil traders into full risk-alert mode.

Read also: Oil prices could surge to $110, Goldman Sachs warns

This escalation has reignited fears about potential supply disruptions, particularly through the Strait of Hormuz, a key corridor that handles nearly 20 percent of global oil flows.

For Nigeria, the rally provides a welcome lift. Analysts suggest it could ease short-term pressure on the naira, which has remained under stress despite a shift to a more flexible exchange rate regime.

“For us, escalation means oil prices may now flirt with $100 a barrel,” said Ikemesit Effiong, partner at SBM Intelligence. “The naira will strengthen slightly against major currencies, largely because those currencies will soften as uncertainty over an Iranian reaction against U.S. assets intensifies.”

Vandana Hari of Vanda Insights was more cautious. “This is an explosive situation,” she told the BBC. “It could spiral into a bigger war that disrupts Mideast oil supply.”

“What we’re seeing now is a very initial risk-on reaction,” added Saul Kavonic, head of energy research at MST Financial. “But over the next day or two, the market will need to factor in where this could escalate to.”

Brent’s surge and the naira’s fate

For Nigeria’s FX market, the Brent rally could offer crucial breathing space. The naira has hovered around ₦1,547/$ on the official window. Any extra dollar earnings from crude would be welcome relief.

But there’s a snag: Nigeria is underproducing.

The 2025 budget assumed 1.78 million barrels per day, but actual output is around 1.4 million due to oil theft, pipeline vandalism, and years of underinvestment.

“If Nigeria cannot ramp up production quickly, the benefits of a price surge will be muted,” said Temitope Ajayi, a Lagos-based oil economist. “We may be watching the global market rally from the sidelines.”

Still, with the budget benchmark set at $75 per barrel, sustained prices above that level could provide a small fiscal buffer. The Central Bank of Nigeria (CBN) might also get some breathing room to defend the naira and rebuild reserves.

Risks and rewards

The bigger risk lies in escalation.

If Iran retaliates further or if shipping through the Strait of Hormuz is directly disrupted, analysts warn that Brent could push past $100.

“If Iran’s oil production or shipping lanes are targeted, we could see prices between $90 and $100,” noted Capital Economics in a client note.

But while Nigeria might gain fiscally, global consequences would be harsh. Higher oil prices drive up inflation, food costs, and interest rates, especially damaging to fragile economies like Nigeria.

Markets are already reacting but not always in the ways you’d expect. While gold initially rallied, symbolising safe-haven demand, it has recently softened amid a stronger dollar. Spot gold is down roughly 0.5 percent to $3,354.03 an ounce, still hovering near two-month highs.

Equities have also experienced turbulence: the Dow Jones Industrial Average slipped around 0.3 percent, while Europe’s FTSE 100 fell about 0.2 percent, and Japan’s Nikkei edged lower by approximately 0.1 percent, reflecting a global mood of caution in response to rising geopolitical risks.

Oil buoyancy or brief relief?

For Nigeria, the question is one of scale and duration.

“If this is short-lived, we get a short-lived FX reprieve,” said Adebayo Shittu, a currency trader at a tier-1 Nigerian bank. “But if this drags out, you might see the parallel market narrow, inflation tick up, and the CBN step in more confidently.”

As Nigeria continues to battle the effects of fuel subsidy removal, FX instability, and low output, a Brent rally offers hope but demands strategic clarity.

“Let’s be honest,” said Shittu, “Brent crude isn’t just oil to Nigeria. It’s our most reliable export, our political buffer, and often our only weapon against a sliding naira.”

In Abuja, policymakers are watching the Gulf not just for signs of peace or war but with their eyes fixed on one screen: the exchange rate ticker.

Oluwatobi Ojabello, senior economic analyst at BusinessDay, holds a BSc and an MSc in Economics as well as a PhD (in view) in Economics (Covenant, Ota).