The deepening trade rift between the United States and China, which has pushed oil prices further down this week, is more than just a geopolitical scuffle for Nigeria. It’s a direct threat to the heart of its 2025 budget — a fiscal blueprint that leans heavily on a $75 per barrel oil benchmark to fund a fragile economy already staggering under debt and persistent inflation.
Goldman Sachs expects Brent crude to average $63 for the rest of 2025, a full $12 below Nigeria’s projection. That alone, if it holds, will blow an even bigger hole in an already battered federal budget, which currently carries a projected deficit of N14 trillion.
In a country where oil earnings still account for over 70% of foreign exchange and a significant share of government revenues, this kind of mismatch between fiscal expectations and market reality is a red flag. If oil prices stay in Goldman’s predicted range or fall further amid deteriorating demand, Nigeria could find itself scrambling for financing in an increasingly tight global environment, where borrowing is more expensive and donor enthusiasm is dwindling.
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Budget Built on Hope, Not Market Signals
President Bola Tinubu’s administration has pinned much of its 2025 spending plan on assumptions that many observers already consider out of step with global trends. The benchmark crude price of $75 per barrel was set against a backdrop of hope that OPEC+ cuts, stable demand from Asia, and improved local production would buoy prices enough to fund government operations.
But none of those pillars are holding firm. China’s demand is stalling. OPEC’s influence is under stress from non-aligned producers. And Nigeria itself is still unable to consistently meet its own production quota, largely due to oil theft, vandalism, and underinvestment.
The situation is so dire that, in real terms, Nigeria may be producing below 1.4 million barrels per day, a figure far short of the 2 million bpd target set by Tinubu for 2025. Add a lower price to lower output, and you have a double-edged blow to revenues.
What’s making matters worse is that the global oil market is shifting in ways that punish countries that rely solely on crude for survival. With the U.S.-China trade war hitting global manufacturing and consumer demand, Goldman projects that oil consumption in Q4 2025 will grow by just 300,000 barrels per day globally — a slowdown not seen in recent years.
This downturn is most acute in the petrochemicals sector, which relies on industrial inputs and is heavily tied to Chinese factories. Nigeria doesn’t just sell crude, it exports a lifeline. But now, that lifeline may be delivering diminishing returns.
This shift is particularly painful for oil economies that don’t have the refining capacity to add value before export, and Nigeria is still in that group, despite the promise of Dangote Refinery. Although the refinery has begun refining crude and is expected to produce more in 2025, pricing uncertainty and lack of transparency in supply agreements raise more questions than answers. There’s still no clear roadmap on whether the facility can meaningfully reduce Nigeria’s import bill or boost state revenues in the short term.
Mounting Deficits, Rising Borrowing, and Limited Options
The N14 trillion deficit in Nigeria’s 2025 budget is expected to be financed largely through borrowing. But with oil underperforming, that financing gap could widen substantially. And Nigeria no longer has the comfort of a robust Eurobond appetite or a buoyant domestic borrowing market. Last week, JPMorgan told investors to exit long positions in Nigerian Open Market Operation (OMO) bills, citing deepening macroeconomic vulnerabilities linked to declining oil prices and an increasingly unstable global economy.
The country’s external reserves are under pressure. The naira remains volatile despite exchange rate reforms. And inflation — driven by fuel costs, forex scarcity, and food insecurity — continues to erode the purchasing power of citizens. That puts more pressure on the government to spend, just as its revenue sources look increasingly uncertain.
The real fear is that Nigeria may be forced to choose between slashing capital projects, piling on more debt, or reverting to subsidy regimes to soften domestic discontent. Any of these options would further delay the economic transformation Tinubu promised when he took office — a transformation that, on paper, hinged on subsidy removal, exchange rate unification, and improved revenue-to-GDP ratios.
Time for Economic Diversification?
What’s becoming clear is that Nigeria’s oil-heavy economic strategy is not sustainable in a world where demand patterns are increasingly unpredictable, prices are swayed by non-market shocks, and energy is being weaponized by major players like the U.S. and China.
While countries like Saudi Arabia are investing in green hydrogen, massive sovereign funds, and tourism infrastructure, Nigeria is still struggling to repair its pipelines and collect taxes effectively. Without a serious pivot — towards gas monetization, renewables, or even functional refining and petrochemical industries, the country risks missing the bus on energy transition and economic resilience.
Nigeria’s Petroleum Industry Act (PIA) was supposed to usher in reform, transparency, and investment. But implementation remains patchy, and regulatory risk still clouds investor confidence.
The oil price drop triggered by U.S.-China tensions reinforces what many analysts and advocates of economic diversification have warned for years: relying on oil to fund the budget is a dangerous game, especially when the rules of the global economy are being rewritten.