With Brent crude trading around $69 per barrel above Nigeria’s 2026 federal budget benchmark of $64.8, the price rally would largely bolster the country’s fiscal revenues, foreign exchange reserves and promote exchange rate stability.
Analysts posit that a full-scale conflict disrupting the Strait of Hormuz, a choke point for about 20 per cent of global oil flows could send Brent prices surging to $91 or even $150 per barrel in weeks.
With the naira and foreign reserves already gaining more grounds following key reforms instituted by the Olayemi Cardoso-led Central Bank of Nigeria (CBN), the ongoing oil prices rally presents an opportunity for the local currency and external reserves to consolidate gains in the coming weeks.
Oil prices rose on Thursday, extending gains for a third consecutive day as concerns grew that the United States could take military action against Iran, a key Middle Eastern oil producer potentially disrupting regional supplies.
Brent crude futures rose by 94 cents, or 1.4 per cent, to $69.34 a barrel, US West Texas Intermediate (WTI) crude also jumped 1.5 per cent to $64.13 per barrel.
The oil prices rally is driven mainly by geopolitical risk premium surrounding Iran and the Middle East, though unplanned outages in Kazakhstan and U.S. (Winter Storm Fern) has had a temporary impact as well.
Rising threats of US–Iran military action have led analysts to project that oil prices may remain high amid heightened geopolitical risks, US restrictions on Russian oil purchases, and sustained Chinese demand, even as markets entered the year expecting a large oversupply
For Nigeria, oil prices increase comes with significant gains in terms of revenue, and economic stability given that over 80 per cent of the country income are from petrodollars.
Already, the naira has traded below the N1,400/$1 level on the official market for the first time in over a year, marking a notable psychological and market milestone for the currency.
Data from the Central Bank of Nigeria show that the Nigerian Foreign Exchange Market rate, the determining benchmark for the official market, strengthened to N1,396.99/$1 on Thursday, up from N1,400.48/$1 on Wednesday. This move confirms the naira’s return below N1,400/$1 after an extended period of trading above that level.
At the parallel market, the naira also appreciated. According to Cowry Asset Management Limited, the naira strengthened by 1.06 per cent to N1,454/$ in the parallel market, “reflecting improved currency sentiment across both the regulated official segment and the informal foreign exchange market.”
President, Association of Bureaux De Change Operators of Nigeria (ABCON), Aminu Gwadabe, said the naira has remained stable across markets for several months, ending years of volatility in the market.
Additionally, Managing Director of Financial Derivatives Company (FDC), Bismarck Rewane, estimated the fair value of the naira at about N1,257 to the US dollar. Eewane posits that the local currency is undervalued by approximately 11 per cent when assessed using the purchasing power parity (PPP) model.
Rewane made the submission during his keynote address at the 2026 Economic Outlook organised by the Association of Corporate Treasurers of Nigeria (ACTN), where he anchored the session and offered a detailed analysis of the structural and cyclical factors influencing Nigeria’s exchange-rate movements.
He noted that currencies typically converge towards their PPP-implied values over a five-year horizon.
According to him, the appropriate exchange rate based on current PPP estimates stands at N1,256.79 to the dollar, reinforcing the view that the naira remains below its fair valuation level.
The CBN explained that monetary reform cannot be effective in a vacuum. Alignment with fiscal policy has strengthened Nigeria’s macro stability and yielded tangible results including reduced domestic borrowing costs, improved liquidity conditions, and more predictable fiscal operations.
For instance, the discontinuation of direct deficit financing signals one prong in our commitment to discipline.
“This stance is unequivocal as there will be no return to the practice of financing fiscal deficits by the Central Bank. In parallel, the fiscal authorities have embarked on key institutional reforms – including the implementation of a Revenue Optimisation (RevOp) framework, the establishment of a new National Revenue Agency, and upgrades to the Treasury Single Account (TSA) – to strengthen revenue mobilisation and public financial management,” Cardoso said.
“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,” he added.