Naira weakens as oil revenue slumps amid global trade fears

DDM News

The naira is under renewed pressure as Nigeria’s oil revenues take a sharp hit from falling global crude oil prices.

Diaspora digital media (DDM) reports that this development comes amid escalating global trade tensions, particularly the tariff threats made by former U.S. President Donald Trump.

Trump’s latest remarks have sparked uncertainty in the international market, raising fears of a revived trade war between the U.S. and China.

This uncertainty has led to a drop in oil prices, which directly affects Nigeria’s economy.

Nigeria remains heavily reliant on oil exports, which account for over 90% of its foreign exchange earnings.

When oil prices drop, the country earns less from exports, weakening its ability to defend the naira against major foreign currencies.

The Central Bank of Nigeria (CBN) attempted to stabilise the exchange rate by injecting approximately $634.85 million into the market last week.

However, this intervention failed to halt the naira’s fall.

In the official market, the naira depreciated by 2.3% to close at N1,603.78 per dollar.

In the parallel market, often more reflective of real demand, the naira dropped by 3.4% to N1,600 per dollar.

Investors are also losing confidence in the near-term stability of the currency.

Forward contract rates reflect this sentiment, with sharp declines across all major tenures.

One-month forwards fell by 3.0% to N1,670.42.

Three-month contracts dropped by 3.6% to N1,752.18.

Six-month contracts fell by 5.2% to N1,870.78.

The one-year forward rate plunged by 7.5%, ending at N2,087.66.

This shows growing concern that the naira may continue to lose value over the next year.

Meanwhile, Nigeria’s foreign exchange reserves declined by $102.14 million last week.

This represents a 0.3% drop, bringing total reserves to $38.04 billion.

The decline occurred despite the CBN’s aggressive intervention in the forex market.

Global analysts warn that the situation could worsen if oil prices continue their downward trend.

A research note by J.P. Morgan titled Frontier Local Markets Strategy: Reducing Risk advised investors to exit Nigerian treasury bills.

The report warned that Brent crude may fall below $60 per barrel, an unsustainable level for Nigeria’s fiscal plans.

The document also highlighted the risk of a global recession stemming from the U.S.-China trade conflict.

Additionally, OPEC’s move to ramp up production has created fears of a global oil surplus.

This oversupply could further depress crude prices, making things worse for oil-dependent economies like Nigeria.

Local analysts echo these global concerns.

Jolomi Odonghanro, Head of Research at Cordros Capital, said Nigeria’s foreign exchange market is extremely vulnerable to international shocks.

He stressed that prolonged low oil prices could result in a trade deficit, which the CBN may not be able to offset with further interventions.

Dr. Ifeanyi Okechukwu of Lagos Business School added a note of caution about Trump’s influence on the market.

He believes Trump’s actions are aimed at keeping global oil prices low for domestic U.S. benefit.

According to him, “Trump wants cheap crude oil, so the level of optimism for the Nigerian economy should be a cautious one.”

Experts agree that unless Nigeria reduces its reliance on crude oil, these shocks will continue to harm the economy.

They emphasise the need for Nigeria to diversify its sources of foreign exchange and attract more foreign direct investment.

Until such structural reforms are in place, the naira is expected to remain under significant pressure.

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