Projected drop in oil prices threatens Nigeria’s 2026 budget plans

Nigeria’s fiscal outlook could come under renewed pressure after global financial services firm Citi projected that Brent crude prices may decline to $60 per barrel by the end of 2026, a development that could significantly reduce the country’s expected oil revenues.

The forecast has heightened concerns over the sustainability of Nigeria’s 2026 budget, which is based on an oil benchmark of $64.85 per barrel and a production target of 1.84 million barrels per day.

Analysts warn that the country has historically struggled to consistently achieve that production level, making lower oil prices an even greater risk to government finances.

Brent crude, which climbed to a peak of $115 per barrel on May 1, 2026, is currently trading at around $72 per barrel, reflecting a sharp decline as geopolitical tensions in the Middle East ease.

A further drop to Citi’s projected $60 per barrel would likely create a substantial shortfall in government revenue, widen Nigeria’s fiscal deficit and force difficult spending decisions.

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It could also increase reliance on domestic and external borrowing to finance the country’s N23.85 trillion budget deficit, adding further pressure to an already rising debt service burden.

Lower oil prices would also weaken Nigeria’s foreign exchange earnings, as reduced export revenues would limit the country’s ability to build foreign reserves. Analysts note that the temporary price premiums driven by geopolitical uncertainty have largely disappeared as the global oil market stabilises.

Oil prices had surged earlier this year following military tensions and disruptions to shipping through the Strait of Hormuz, one of the world’s most strategic oil transit routes. However, maritime operations have since normalised after a ceasefire brokered by the United States and Iran eased regional tensions.

According to Citi, the fading geopolitical risk premium, coupled with weaker demand from China and an oversupplied global market, is expected to push crude prices lower in the coming months.

“Fundamentals are rapidly reasserting themselves,” Citigroup strategists led by Francesco Martoccia said in a research note.

The analysts noted that shipping flows through the Strait of Hormuz have largely returned to normal, while Chinese crude demand remains subdued. They also pointed to weakening physical crude markets and lower-than-expected inventory drawdowns as additional factors weighing on prices.

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Citi further observed that some European countries are considering arrangements to pay transit fees to Iran and Oman to ensure uninterrupted access to the Strait of Hormuz, reducing fears of prolonged supply disruptions.

The investment bank said shipping companies have resumed normal operations after receiving assurances of safe passage through the waterway, although some short-term volatility could persist as insurers and shipping firms adjust to changing market conditions.

“The initial period is expected to be volatile given that shipping lines rebalance and insurance markets react while working through any residual capacity constraints,” the analysts said.

They added that the resumption of orderly shipping and increased transit volumes suggests market participants now consider the security risks in the region to be manageable.

For Nigeria, whose economy remains heavily dependent on crude oil exports, the projected decline in oil prices presents fresh challenges to revenue generation, fiscal stability and foreign exchange management, reinforcing calls for accelerated economic diversification and improved non-oil revenue mobilisation.