Nigeria ditches US dollar, will now sell crude oil in naira

Nigeria, Africa’s biggest oil-producing country, is done with selling crude oil in US dollars. The government has decided to start selling in naira.

This change was made by the Federal Executive Council (FEC). Nigeria’s oil industry relied heavily on foreign currency, specifically the dollar, for decades.

Mohammed Manga, spokesperson for the Ministry of Finance, explained that this strategic change will improve the growth and stability of Nigeria’s economy.

With around 37 billion barrels of oil reserves, the country accounts for 3.1% of global reserves. With the ongoing geopolitical instability, including the Middle East tensions and the Russia-Ukraine war, the timing of this couldn’t be better 

Crude prices rise amid Middle East tensions

The conflict between Iran and Israel has sent oil prices soaring. Nigeria’s type of crude, Bonny Light, has risen from $73 per barrel to $78.

International benchmark Brent crude is now sitting at $79 per barrel, up more than 10%. Iran, being one of the world’s major oil producers, has fired almost 200 missiles into Israel, further escalating the situation. 

The Nigerian government set its 2024 budget with a benchmark of $78 per barrel, a figure they are now hitting. If production meets the daily target, it could help reduce the budget deficit.

Dr. Abdulsalam Muhammad Kani, an economist, says that if this upward trend continues, it could be a rare opportunity for Nigeria to stabilize its economy. He said:

“If the prices remain high and production stays consistent, Nigeria could see some relief in its debt servicing and public project funding.”

At the same time, a higher dollar influx into the economy could ease pressure on Nigeria’s foreign exchange. A stronger naira might reduce the costs of imported goods, a significant issue for a country that imports almost everything. Kani explained:

“The more dollars we earn from oil, the stronger our currency could get, which means cheaper goods for Nigerians.”

But this is not the full picture.  

Oil theft and corruption are still major obstacles

Even with rising oil prices, Nigeria still faces internal problems that threaten any potential benefits. Energy expert Engr. Sani Yabagi highlighted that corruption and oil theft are rampant in the oil sector, eating into Nigeria’s profits.

Yabagi points out that Nigeria loses a lot of crude oil to theft, most of it by well-connected individuals. 

“The money Nigeria should be making from its crude ends up in the hands of thieves. This is a huge problem, and it stops the country from fully enjoying the rise in global oil prices.”

Between August 24 and 30, the Nigerian National Petroleum Corporation (NNPC) reported 188 oil theft incidents in the Niger Delta alone. That’s just in one week. 

This level of theft drastically reduces the amount of crude that Nigeria can sell, even as prices rise. Yabagi explained that Nigeria’s oil revenue is further weakened by the fact that the country imports most of its refined petroleum products.

“We sell crude oil and buy refined oil back. So, even when crude prices go up, we’re still spending the money we make on bringing refined products into the country.”

Nigeria has only recently started refining its oil locally, with the opening of the Dangote Refinery. But this is a private operation, so its effects on national revenue are minimal for now.

Last week, the federal government began selling crude oil to Dangote and other local refineries in naira, further cementing their decision to move away from the US dollar. But, according to Yabagi, this isn’t enough to solve the bigger issues. He said:

“Unless the government sells crude to local refineries like Dangote at a lower price, the impact on fuel prices will be small. For now, Dangote still buys crude from other countries too, because NNPC can’t meet its full demand.”

The crisis in the Middle East is expected to drive global energy costs even higher. While this could bring short-term gains for oil-producing countries, Yabagi believes that without proper management, Nigeria might not benefit as much as expected. 

He added, “The rising costs of energy might hurt Nigeria more than it helps. We need to address corruption and imports, otherwise, we won’t see much improvement.”