Nigeria will likely avoid major fiscal slippage and a liquidity crisis in 2025 if Brent oil prices stay around $60-65 a barrel, but declining oil prices risk exacerbating socioeconomic grievances by adding upward pressure on already high inflation, which would heighten protest risks and facilitate recruitment by jihadist and bandit groups. On May 12, the World Bank warned that Nigeria's 2025 budget relied on "overly ambitious revenue assumptions" that could result in a higher-than-anticipated fiscal deficit. These warnings come as global oil prices have steeply declined since the start of April following U.S. President Donald Trump's announcement of "reciprocal" U.S. tariffs, which fuelled concerns of a slowdown in global economic growth. Trump's announcement of a 90-day pause on those tariffs enabled prices to rebound in mid-April, but the price of Brent — the global benchmark for oil — once again slipped below $60 a barrel in early May following OPEC+'s announcement that it will raise its collective production cap by 411,000 barrels per day (bpd) in June, compared with the original 138,000 bpd production increase that the bloc had previously agreed on. Expectations of a tariff-induced global economic slowdown and rising oil production prompted leading investment banks to downgrade their outlook for global oil prices, with Goldman Sachs cutting its forecast for average Brent oil prices to $60 a barrel in 2025 and $58 a barrel in 2026 on May 5. While this forecast came ahead of the announcement of a U.S.-China deal to reduce tariffs on May 12, which saw Brent prices rebound to around $65 a barrel, Goldman Sachs has stood by its price outlook, which remains well below the $75 a barrel forecasted in Nigeria's 2025 budget. 

The downturn in oil prices comes as Nigerian President Bola Tinubu has advanced a number of structural economic reforms that have fueled a steep surge in inflation but have put Nigeria's economy on a sounder footing. Since taking office in May 2023, Tinubu has pressed ahead with comprehensive currency reforms that largely ended Nigeria's tiered exchange rate regime and saw the naira depreciate by around 70% against the U.S. dollar in less than a year. While this triggered a steep surge in inflation, the adoption of a broadly unified and market-reflective exchange rate has supported the growth of the country's non-oil exports. Moreover, the devaluation of the naira and the launch of the $20 billion Dangote refinery have helped compress imports. Taken together, these dynamics have enabled Nigeria to grow its current account surplus to around 9% of its GDP in 2024, up from 0.5% in 2023. In addition to currency reforms, Tinubu has successfully scrapped Nigeria's controversial fuel subsidy. This materialized through repeated gasoline price hikes, with the state-owned Nigerian National Petroleum Corporation, or NNPC, temporarily bearing the difference in costs between the price at the pump and global prices. While this resulted in NNPC facing a steady increase in its arrears, which surged to $6 billion by mid-2024, fuel subsidies were effectively terminated in autumn 2024. This marked a major achievement for Tinubu and will enable the federal government to save around $10 billion every year, or more than 2% of the country's GDP in 2022. 

• Nigeria's headline inflation rose from 22.4% in May 2023 to 34.6% in November 2024, which prompted Nigeria's central bank to increase interest rates from 18.5% in April 2023 to 27.5% in November 2024. Gauging recent inflation dynamics is challenging following Nigerian authorities' move to rebase the country's consumer price index in late 2024, but inflation figures have since dropped, declining from 24.2% in March to 23.7% in April.

In the face of lower oil prices, Nigeria's fiscal challenges will be compounded by the government's overly optimistic outlook for oil output, which is unlikely to meet production targets laid out in the country's 2025 budget. On Feb. 28, Tinubu signed into law the country's 2025 budget, which foresees 56% of government revenue being derived from oil sales and oil prices averaging $75 a barrel during the year. With Brent oil prices currently around $65 a barrel, this portends a loss in government and foreign exchange revenue, but Nigeria's fiscal challenges will be compounded by its government's optimistic budgetary assumption regarding oil production. While the 2025 budget foresees oil output averaging 2.06 million barrels per day for the fiscal year, the Nigerian Upstream Petroleum Regulatory Commission found that the country's total oil output, including condensates, declined from 1.74 million bpd in January to 1.68 million bpd in April. Although the government could succeed in boosting production in the coming months, Nigeria's average oil output for the year is still unlikely to reach the level forecasted in the 2025 budget. For one, the country's OPEC+ crude oil quota remains at 1.5 million barrels per day, and the bloc currently appears highly unlikely to review this quota upward before 2026. Nigeria will remain able to increase its production of condensates, which are not included in the OPEC+ quota, and could also decide to raise its crude oil output beyond the bloc's quota. However, the government will still face major physical constraints in meeting its production target, as much of Nigeria's oil infrastructure has aged over the past decades and often lacks adequate maintenance, which results in recurring oil spillages and production stoppages. Moreover, oil theft persists in the oil-rich Niger Delta region, despite efforts by the federal government to improve the area's security, which will constrain oil companies' ability to increase output. 

• Nigeria's 2025 budget forecasts an economic growth rate of 4.6% for the year. However, the International Monetary Fund's April 2025 estimate foresees the country's economy growing by only 3% in 2025, down from 3.4% in 2024. This lower-than-expected growth will likely affect Nigeria's non-oil economy, meaning that the country's non-oil tax revenue could also be lower than anticipated despite potential improvements in tax collection.
• On March 18, Tinubu imposed a state of emergency in Rivers state, which is located in the Niger Delta, after two seemingly politically-motivated attacks on the state's oil infrastructure. The attacks occurred amid escalating tensions between Rivers Governor Siminalayi Fubara and lawmakers loyal to Minister of the Federal Capital Territory, Nyesom Wike. On March 17, lawmakers allied with Wike filed an impeachment motion against Fubara, despite warnings by local militant groups that such a move would trigger attacks on oil infrastructure. While Fubara was suspended as governor following the imposition of the state of emergency, he appears to now be seeking reconciliation with both Wike and Tinubu. No politically-motivated attack has been confirmed in Rivers since the March 18 imposition of emergency rule in the state, though financially-motivated vandalism has persisted. 

If Brent prices remain around $60-65 a barrel, the Nigerian government will likely increase domestic revenue mobilization, moderately expand borrowing and impose limited spending cuts, with the scope of the latter two actions likely to grow if oil prices decline further. Given likely production shortfalls, Brent oil prices remaining around $65 a barrel would probably result in the federal government's oil revenue being 15-30% lower than forecasted, depending on output, which would be equivalent to an 8-15% loss in expected government revenue. However, the small size of Nigeria's budget when compared to the country's GDP means this would only pose a limited risk of major fiscal slippage, with the fiscal deficit in 2025 likely rising from the 3.9% of GDP forecasted in the budget to around 5% of GDP without spending cuts, if Brent oil prices remain around $65 a barrel. Nonetheless, Tinubu's apparent commitment to more orthodox economic policies suggests he will seek to maintain fiscal discipline, at least initially. To that end, the federal government will first look to accelerate domestic revenue mobilization by, for example, increasing tax compliance, which remains weak. The federal government could also seek to grow remittances from government agencies and state-owned companies, as well as ensure that a greater share of revenue gains from the recent scrapping of fuel subsidies are directed to the federal budget, rather than to settle NNPC's arrears. However, such measures will threaten vested interests in Nigeria and will likely remain gradual. Tinubu will thus likely look to spread the political and economic risks emerging from lower oil prices by also expanding borrowing and cutting public spending. This notably could involve securing more concessional financing (such as loans from multilateral development banks), rationalizing public spending in the administration, and pausing certain infrastructure projects. While spending cuts and borrowing will likely remain broadly limited if Brent oil prices remain around $65 a barrel, their scope would likely grow in the event of a further drop in oil prices, especially if Brent falls below $55 a barrel.

• In early May, Nigeria's Senate approved four tax bills forwarded by Tinubu aimed at increasing domestic revenue mobilization. While the Senate rejected a proposed increase in the country's value-added tax (VAT), the bills aim to increase tax collection by raising penalties for non-compliance and establishing a Nigeria Revenue Service, which will act as a centralized tax authority. 

Declining oil revenue will put fresh downward pressure on the naira, but while the Nigerian government will likely be willing to accept a limited currency depreciation, a sustained drop in Brent oil prices will make Abuja more likely to allow a greater divergence between the currency's official and black market rates to mitigate short-term inflationary pressures. With oil exports representing around 90% of Nigeria's export revenue, Brent oil prices remaining at around $65 a barrel would cause a marked drop in the country's foreign exchange revenue when compared to 2024, when prices averaged $80 a barrel. This will expose the naira to fresh downward pressure, especially if the federal government expands borrowing to limit spending cuts — which would threaten to result in rebounding inflation. While Tinubu proved willing to advance structural reforms that temporarily increased inflation at the start of his term, his expected reelection bid in Nigeria's 2027 general election will likely see the federal government put a greater emphasis on curbing inflation than it previously did as Tinubu seeks to shore up support ahead of the next election. To that end, the government will likely support foreign exchange interventions by the central bank, which, together with recent improvements to Nigeria's current account balance, will mitigate downward pressure on the naira. Moreover, internal divisions within Nigeria's two leading opposition parties — the Peoples' Democratic Party (PDP) and the Labour Party — will likely make Tinubu's government more willing to tolerate a limited depreciation of the naira, given the opposition's current challenges in presenting a credible alternative. However, the inflationary pressure associated with a steep depreciation of the naira would still dent Tinubu's reelection prospects. Against this backdrop, the government could allow greater divergence between the naira's official rate and the black market rate, which would mitigate price increases on key imports in the short term. This will become more likely if Brent oil prices fall below $55 a barrel for a sustained period of time, and/or if the government seeks to limit drawdowns from Nigeria's foreign exchange reserves, which will be needed to settle growing foreign debt servicing costs in the medium term. 

• Nigeria's foreign exchange reserves currently stand at around $38 billion, which is enough to cover about five months of imports. Net foreign reserves, meanwhile, stood at $23.11 billion in late December 2024, the highest level in three years. This suggests that the country is unlikely to face a liquidity crisis in 2025, despite lower oil prices. 
• While Nigeria's inflation declined from 24.2% in March to 23.7% in April, the IMF expects the inflation rate to be 26.5% in 2025. 

Sustained inflation and government efforts to boost tax collection will likely keep Nigerians' socioeconomic grievances elevated, which will heighten the risk of unrest and fuel recruitment by bandit and jihadist groups. Despite government efforts and the central bank's likely decision to postpone interest rate cuts for at least the next several months, downward pressure on the naira caused by lower oil prices will likely keep inflation elevated for a longer period of time. This means Nigerians' socioeconomic grievances will also likely remain heightened for the foreseeable future, as rising prices will not only further strain incomes but also hinder job creation by increasing operating costs for businesses. Nigeria's trade unions have already laid out demands for a new living wage, arguing that the more-than-doubling of the minimum wage in 2024 has now completely eroded due to rising living costs. However, the federal government will likely resist these demands, as it seeks to mitigate increases in public sector wages and avert a potential wage-price spiral. This could see unions launch fresh strikes and protests, which, given their large membership, could prove heavily disruptive. Civil society-led or spontaneous protest movements will also become comparatively more likely amid government efforts to boost tax compliance and the country's persisting cost-of-living crisis, especially in northern Nigeria, where economic opportunities remain sparse. Additionally, the government's inability to curb Nigerians' socioeconomic grievances will also facilitate recruitment by jihadist, bandit and militant groups, especially in the event of a steep surge in inflation. 

• Activity by jihadist groups appears to be growing in Nigeria's Middle Belt in recent months. The Islamic State West African Province is reportedly seeking to expand its presence in the states of Plateau and Bauchi, while al Qaeda affiliate Ansaru is reportedly reinforcing its presence in the states of Niger and Kogi. Moreover, a new militant group known as Mahmuda, which is suspected of having ties to al Qaeda, has emerged in the western parts of Nigeria's Middle Belt and is reportedly operating in the states of Niger and Kwara.