Nigeria’s FX reserves currently stand the chance of being strengthened as surging global oil prices enhance foreign exchange inflows and offer some stability for the naira, amid spikes in the cost of refined products, OKECHUKWU NNODIM writes

With Brent crude trading above $93 per barrel—well above Nigeria’s 2026 federal budget benchmark of $64.85—the current rally in global oil prices is expected to strengthen the country’s fiscal revenues, foreign exchange reserves, and exchange rate stability.

Analysts say that if tensions escalate into a full-scale conflict capable of disrupting the Strait of Hormuz—a vital route that carries roughly 20 per cent of global oil supply—Brent prices could rise beyond $100 per barrel.

“Higher oil prices typically strengthen Nigeria’s current account balance and improve foreign exchange liquidity,” the Chief Executive Officer, Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, stated in a recent policy brief titled ‘Implications of the Iran–US–Israel Conflict on the Nigerian Economy’.

“This could reduce short-term pressure on the naira and reinforce investor confidence,” Yusuf, a renowned economist, further explained.

For Nigeria, such a surge in crude prices would translate into stronger export earnings and improved external balances. With the naira showing increasing stability and foreign reserves already rising following reforms introduced by the Central Bank of Nigeria under Governor Olayemi Cardoso, the current oil price surge presents an opportunity for the local currency and external reserves to consolidate recent gains.

Brent Crude and West Texas Intermediate have both climbed above the $80 mark, with Brent crossing $93 amid severe disruptions to tanker traffic through the Strait of Hormuz. Shipping activity across the strategic passage has slowed sharply, leaving millions of barrels of crude oil unable to reach global markets.

Murban crude, meanwhile, recently surged past $120 per barrel, underscoring the extent of disruptions to tanker movements through the strait.

Despite the disruptions, US Energy Secretary Chris Wright attempted to calm consumer concerns by suggesting that any disruption may be short-lived. “If this is brief in duration, it’s a small dislocation,” Wright told the Wall Street Journal during an interview last week.

For Nigeria, higher oil prices represent a major advantage given the country’s heavy reliance on crude exports for revenue. More than 90 per cent of the nation’s foreign earnings come from petroleum exports.

The naira has already shown signs of recovery. The local currency recently traded below the N1,400 per dollar level in the official market for the first time in more than a year, a development widely regarded as a key psychological and market milestone.

President of the Association of Bureaux De Change Operators of Nigeria, Aminu Gwadabe, said the naira has maintained stability across various segments of the market in recent months, ending a prolonged period of volatility.

Similarly, the Managing Director of Financial Derivatives Company, Bismarck Rewane, estimated the fair value of the naira at about N1,257 to the US dollar. According to him, the local currency remains undervalued by roughly 11 per cent when assessed using the purchasing power parity model.

Rewane presented this position during his keynote address at the 2026 Economic Outlook organised by the Association of Corporate Treasurers of Nigeria, where he delivered an in-depth analysis of both structural and cyclical factors shaping Nigeria’s exchange-rate dynamics.

He explained that currencies generally move toward their purchasing-power-parity values over a five-year period. Based on present PPP estimates, Rewane stated that the appropriate exchange rate stands at about N1,256.79 to the dollar, reinforcing the argument that the naira is currently below its fair value.

Charlie Robertson, author of The Time Travelling Economist, also pointed to the global currency environment as a supportive factor. “A weak dollar is dislocating many markets, but it is good for Africa, as we are seeing with the naira,” Robertson said.

The appreciation of the naira is also linked to rising confidence in Nigeria’s macroeconomic policy direction. Stronger foreign exchange inflows, rising reserves, and improved governance in the currency market have all contributed to growing stability.

Reserves record growth

Nigeria’s external reserves have also recorded considerable gains in recent months. The reserves climbed to $50.45bn on February 16, crossing a major threshold and moving close to the Central Bank of Nigeria’s forecast level of $51.04bn for the year.

In the apex bank’s 2026 Macroeconomic Outlook for Nigeria, Cardoso projected that the country’s external reserves would rise to $51.04bn in 2026. He explained that the expected increase would be supported by stronger oil earnings, reforms in the foreign exchange market, and improved external inflows.

The CBN said the outlook reflects higher oil revenues, increased sovereign bond issuance, sustained diaspora remittances, ongoing FX market reforms, and expanding domestic refining capacity.

According to the apex bank, “The external reserves is projected at $51.04bn in 2026, compared with $45.01bn in 2025. The external reserves is expected to be boosted by reduced pressure in the FX market based on the anticipated rise in oil earnings, sovereign bond issuance, and diaspora remittance inflow.’’

Cardoso also revealed that Nigeria’s net foreign exchange reserves stood at $34.80bn as of December 2025. He noted that the figures demonstrate the benefits of greater transparency and credibility in foreign exchange management.

Gross reserves refer to the total stock of foreign assets held by the Central Bank of Nigeria, including foreign currencies, gold, and other external assets. Net reserves, however, strip out short-term liabilities and obligations, providing a clearer picture of the portion of reserves that is readily available to defend the naira and meet external commitments.

According to the CBN governor, improved transparency has strengthened investor confidence, attracted higher FX inflows, and enhanced reserve management practices designed to preserve capital, ensure liquidity, and support long-term sustainability.

The improvement represents a major strengthening of Nigeria’s external buffers over the past three years. Net reserves rose sharply from $3.99bn at the end of 2023 to $34.80bn by the close of 2025, which Cardoso described as a fundamental improvement in reserve quality.

He further explained that the 2025 net reserve figure alone exceeded the total gross reserves recorded at the end of 2023, which stood at $33.22bn. Cardoso added that net reserves increased from $23.11bn at the end of 2024 to $34.80bn by the end of 2025.

Over the same period, gross external reserves rose from $40.19bn to $45.71bn, representing an increase of $5.52bn. According to him, the growth highlights Nigeria’s strengthened capacity to meet external obligations, maintain exchange rate stability, and reinforce overall macroeconomic resilience.

Data published on the CBN website also shows that Nigeria’s external reserves increased by $5.82bn, or 14.45 per cent, to $46.11bn as of January 28, 2026, compared with $40.29bn recorded on December 2, 2024. The reserve level crossed the $46bn threshold for the first time in nearly eight years, highlighting steady growth since 2025.

Latest figures from the apex bank show that reserves rose by about $510m within 22 days, increasing from $45.502bn on December 31, 2025, to $46.012bn on January 22, 2026. Industry data indicates that Nigeria’s last recorded reserves was at this level on August 27, 2018, when they stood at $45.9bn.

The continued build-up of reserves signals stronger buffers for import cover and currency stability, reflecting steady inflows and improved management of foreign exchange since the reforms were introduced.

The data also points to a turnaround from the volatility experienced during the early phase of the new FX regime. External reserves ended 2025 at about $45.5bn after opening the year at roughly $40.8bn.

Analysts remain optimistic that the steady rise in reserves will continue through the year. They attribute the improvement largely to government reforms that have strengthened confidence in the economy.

However, they caution that maintaining the momentum throughout the election year will depend on the government’s ability to sustain fiscal discipline.

Capital inflows increase

Foreign capital inflows into Nigeria have also recorded strong growth. Total inflows reached $20.98bn within the first ten months of 2025. This represents a 70 per cent increase compared with total inflows recorded in 2024 and a 428 per cent surge from the $3.9bn recorded in 2023.

According to Cardoso, the naira now trades within a narrow and stable band, while the gap between the official and parallel market exchange rates has narrowed to less than two per cent from over 60 per cent previously. He noted that Nigeria’s macroeconomic indicators show that the country is currently more resilient to external shocks than at any time in recent history.

The country’s external sector strengthened considerably in 2025. The current account balance rose by more than 85 per cent to $5.28bnb in the second quarter of the year, compared with $2.85bn in the first quarter.

Foreign reserves reached $46.7bn by mid-November, the highest level in almost seven years. This provided more than ten months of forward import cover, significantly strengthening the economy’s resilience.

Cardoso emphasised that Nigeria’s reserves are now being rebuilt organically rather than through borrowing. “What is most important here is that our FX reserves are being rebuilt organically, not by borrowing, but through improved market functioning, stronger non-oil exports, and robust capital inflows,” he said.

Although oil production improved modestly to between 1.45 million and 1.52 million barrels per day in 2025, Cardoso highlighted the performance of non-oil exports as an encouraging development. Supported by ongoing reforms and greater exchange-rate flexibility, non-oil exports grew by more than 18 per cent year-on-year.

Diaspora remittances have also strengthened as confidence returns to official channels following improvements in transparency, settlement efficiency, and reporting. Remittances increased by about 12 per cent during the year and are expected to rise further as the Non-Resident BVN programme gains wider adoption in 2026.

Domestic economic strengths

Professor Abiodun Adedipe, founder and Chief Consultant of B. Adedipe Associates Limited, said several major policy shifts are beginning to produce positive outcomes for Nigeria’s economy. According to him, foreign exchange market reforms have eliminated opportunities for arbitrage and round-tripping.

He also noted that the removal of petrol subsidies has eliminated an annual fiscal burden estimated at $10.7bn while creating a more competitive environment in the downstream sector. Bank recapitalisation, he added, is strengthening financial institutions and positioning them to support Nigeria’s long-term ambition of building a $1 trillion economy.

Adedipe also highlighted fiscal consolidation efforts aimed at plugging leakages, deploying technology in revenue collection, and expanding fiscal space at sub-national levels.

He described tax reforms as a potential game-changer capable of stimulating regional competition and driving economic transformation. Other initiatives he cited include the Nigerian Education Loan Fund, the Consumer Credit Corporation, the recapitalised Bank of Agriculture, the National Credit Guarantee Company Limited, and plans for single-digit mortgage interest rates.

Adedipe also pointed to structural advantages supporting Nigeria’s economic outlook. These include the country’s large and youthful population, estimated at 237.53 million in July 2025, making Nigeria the sixth most populous country in the world, with a median age of 18.1 years.

Nigeria is also experiencing rapid urbanisation, with the urban population rising to 54.28 per cent in December 2023 from 46.12 per cent in 2013. Internet penetration has continued to expand, reaching 48.15 per cent in April 2025, up from 45.57 per cent in August 2023 and 31.48 per cent in December 2018.

Tele-density stood at 79.65 per cent in May 2025 compared with 76.08 per cent in December 2024, although it declined from 102.97 per cent in December 2023 due to data clean-up carried out in April 2024.

Nigeria also ranks 11th globally in terms of internet users, with about 123 million people online, more than 84 per cent of whom access the internet through mobile devices.

Adedipe noted that domestic oil refining capacity continues to expand, while manufacturing activity is gradually reviving and interest in non-oil exports is increasing. He added that improvements in infrastructure are expected to gradually reduce the cost of doing business.

According to him, sustained reforms will enhance global competitiveness, improve the ease of doing business, and reduce opportunities for economic rent-seeking.

The Central Bank of Nigeria emphasised that monetary reforms cannot succeed without strong coordination with fiscal policy. The alignment between both policies, the apex bank said, has already produced tangible results, including lower domestic borrowing costs, improved liquidity conditions, and more predictable fiscal operations.

One key development is the discontinuation of direct deficit financing by the Central Bank. Cardoso described the policy as a firm commitment to fiscal discipline. “This stance is unequivocal as there will be no return to the practice of financing fiscal deficits by the Central Bank,” he said.

He also noted that fiscal authorities have implemented several institutional reforms, including a Revenue Optimisation framework, the establishment of a National Revenue Agency, and upgrades to the Treasury Single Account system.

According to him, these measures are aimed at strengthening revenue mobilisation and improving public financial management.

“As we transition towards a full-fledged inflation-targeting framework, this partnership will deepen, ensuring fiscal and monetary policies reinforce each other in delivering durable price stability,” Cardoso said.

Oil sector performance

Meanwhile, the Nigerian National Petroleum Company Limited reported a profit after tax of N385bn in January 2026, even as crude oil and condensate production rose to 1.64 million barrels per day, according to the firm’s latest monthly operational report.

The PUNCH reported on Tuesday that the January 2026 NNPC Monthly Report Summary, released on Monday, showed that the state-owned energy company generated N2.571tn in revenue during the month while remitting N726bn as statutory payments to the Federation.

This means the company recorded a sharp 47 per cent decline in its monthly revenue, which fell from N4.82tn in December 2025 to N2.57tn in January 2026. This contraction came despite a marginal increase in the company’s profit after tax.

The report indicated that production recovery during the month was driven largely by the completion of maintenance work at key offshore assets, particularly the Agbami field, as well as operational improvements in other upstream facilities.

It disclosed that Nigeria produced 1.64 million barrels per day, up from 1.55 million barrels per day recorded in December 2025. This represents an increase of 0.09mbpd, or about 5.8 per cent month-on-month.

The development indicates a partial recovery from the production slowdown recorded in the last quarter of 2025, when output had slipped to around 1.54mbpd in October and 1.55mbpd in December.