Sopuruchi Onwuka

The prevailing reciprocal tariffs imposed on global imports into the United States of America and the consequent trade wars among global economic powerhouses leave realization of Nigeria’s fiscal projections for 2025 in great uncertainty.

Government’s budget for the year which is predicated on some 2.06 million barrels of crude oil production per day at an average price of $75 per barrel forms the largest component of the fiscal projections totaling N54.99 trillion for 2025.

The budget was described by oil industry pundits at the Nigerian International Energy Summit (NIES) conference in February as very ambitious agenda set by the government for the petroleum industry, in a sector which is currently battling operating challenges that impact the efficiency of players to deliver on business targets.

In its current catch up situation, petroleum liquids production was calculated in February at 1.8 million barrels per day, some significant 0.206 million barrels per day short of the volumes required to realize the targets set in the budget.

Worse still, the country’s natural gas liquefaction and export company, the Nigeria LNG Limited, also reported severe security and safety challenges in the operating environment; drastically limiting its plant availability for output to market.  

Given that the country’s local currency is presently one of the weakest in the world, a situation that is worsened by foreign exchange squeeze, and that the nation’s thinly diversified exports are dominated by crude oil and natural gas; the role of petroleum exports in meeting the targets set in the 2025 budget becomes very critical in meeting government’s fiscal goals.

Again, pressure has remained on the petroleum industry since the emergence of the President Bola Tinubu administration of the federal government to boost production in order to meet both domestic fuel demand and also deliver foreign exchange returns from the international market.

To salvage the local economy from the brinks of collapse under an overwhelming weight of massive external debts, the Tinubu government has tasked the petroleum industry with additional production of 1.0 million barrels per day to boost output to nearly 2.7 mbd of liquids in the immediate to near term.

These targets are supported by fiscal concessions that flaunt commercial lucre for players and investors willing to take advantage of the incentives captured in broader economic reforms conceived to arrest galloping inflation and salvage the Naira from unchecked depreciation.

Unfortunately, the ambitious production estimates for the petroleum industry which form the key factors for the 2025 fiscal projections are currently nowhere within reach. And despite mounting pressure on players in the sector to rise to the challenge of delivering the aspirations set by the incumbent government; the fallouts from the prevailing upset in global trade relations with the world’s biggest economy pose serious threat to market returns.

For instance, crude oil prices dropped to about $63.90 per barrel weekend, the lowest since August 2021. The price slump is in pattern with prediction of global economic recession that would inevitably accompany President Donald Trump’s reciprocal trade tariffs on exports to the United States.

Review of market reports at the weekend by The Oracle Today showed backwardation as refiners seize the opportunity of low prices to stock oil from bearish markets. And following the prevailing trade spar between the US and China, the Energy Information Administration (EIA) of the United States declared in a forecast at the weekend that the annual price for the Brent crude oil grade will fall by $6 per barrel to $68 per barrel.

Revision of EIA price forecasts came after clear indication that the US-China trade war has worsened with the currentescalatory spiral of import tariffs, endangering a $585 billion trade relationship.

Given that the United remains the world’s largest oil and natural gas exporter and China leads global energy imports, the trade war between the two countries present weak demand outlook and consequent downward pressure on global oil prices.

Market pundits followed by our correspondents reported Friday that China’s decision to raise tariffs on US goods to 125 percent caused oil prices to drop and reignited fears of an economic downturn despite a 90-day tariff pause on some countries.

Oil prices which were range bound before China’s tariff announcement have since dropped, with both WTI and Brent in the red at $59.91 and $63.16, respectively.

According to Warren Patterson and Ewa Manthey of the ING, “this uncertainty is still likely to drag on global growth, which is clearly a concern for oil demand. Still, conditions are not looking as bad as they were just a few days ago.”

Whereas Nigeria no longer sells the bulk of its crude oil and natural gas to the United States, shake up in the supply and demand dynamics have started delivering indirect impacts on the country’s oil export earnings.

With the prevailing oil price slump, coupled with slow production recovery at oilfields, the Nigerian fiscal estimates for 2025 are made vulnerable by both the yawning gaps in production volumes and falling market returns. And the yawning gap emerging from production shortfalls and falling prices can only translate to broader macroeconomic instability, manifesting in low foreign exchange earnings and impacting the ability of the Central Bank to sustain support for the weak Naira.

Under the scenarios presented by the current situation, inflationary trend is bound to escalate while the overall goal of reducing poverty triggered by deregulation and liberalization of the domestic fuel market will be defeated.

Local data analysts, Dataphyte, noted in a report weekend that “sustained decline in oil prices could trigger a chain reaction disrupting investment, eroding fiscal buffers, and stifling growth across Nigeria’s wider economy.”

Lastly, the direct impact of new and tentative 14 percent tariff on Nigeria’s exports to the United States also poses direct threat to government’s recovery effort for the Naira. And the recent release of over $200 million into government’s foreign exchange windows is perceived as panic measure to shield the Naira from global shockwaves of the US tariff alarm.

In sum, whatever local protective measure may not have any effect on the international market where the value of Nigeria’s exports is determined by market forces.  And falling oil prices would inevitably deliver devastating impact on the ailing Naira the recovery of which has remained the biggest economic project of government’s monetary policy drivers. 

Thus, the existing gaps in projected oil production volumes and the worsening price dive at the export market are bound to compound the direct impact of rising United States tariff on Nigeria’s export to deliver deleterious effect on President Tinubu’s fiscal plans for the year.