Nigeria’s oil windfall: A fantasy despite crude at $100 a barrel

The escalating conflicts in the Middle East have caused oil prices to soar to $115 per barrel this month.

The anticipated windfall in the Nigerian FG budget is largely offset by crucial “leaks,” even though the 2026 budget was constructed on a $64.85 benchmark.

A sizable portion of Nigeria’s current production does not produce new revenue because it was pledged years ago to pay off debts.

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Nigeria agreed to supply about 125,000 barrels per day until 2028 under these crude-backed loan agreements.

Consequently, the West African economy struggles to keep production above 1.4 million barrels per day, despite a target of 2.06 million barrels per day for this year.

Nigeria’s oil output fell to 1.31 million barrels per day last month, mainly due to Shell shutting down a major 225,000 bpd facility for maintenance.

The federal government recently shortened permit approval times for restarting idle wells from weeks to hours to benefit from the over $100+ price environment.

Africa’s most populous economy produced 50.5 million barrels of crude oil and condensate in January. Oil production dipped to about 41.6 million barrels in February, bringing the total output to 92 million barrels.

Nigeria was projected to produce about 57 million barrels in January and 51.5 million barrels in February, totaling approximately 108.6 million barrels for the period, according to the government’s benchmark in the 2026 budget.

There are also fewer “unencumbered barrels” available at spot prices because much of Nigeria’s crude is pre-committed to refinery obligations and crude-backed loans, even though higher prices should boost the fiscal surplus.

The Nigerian energy market has shifted from an “export-only” model to a “domestic-first” approach thanks to the 650,000 bpd Dangote Refinery.

The refinery received only about 27% of the needed crude from NNPC between October 2025 and March 2026, resulting in a shortfall of 79.5 million barrels

Price transmission has caused domestic petrol prices to jump above N1,250 per liter as the refinery passes global crude costs, converted to foreign exchange, onto the local market. Markets were somewhat optimistic this week as US efforts to resolve the conflict gained momentum despite reports that Iran rejected a truce and continued strikes.

Nigerian crude near $100 a barrel as traders review Israel/US- Iran conflict

Nigerian crude remained largely volatile as the United States and Iran disagreed on terms that could end the Middle East conflict. Bonny Light, a major Nigerian crude, last traded at $98 a barrel on Wednesday.

• The US-Israel-Iran conflict and disruptions in the Strait of Hormuz have created a significant “Risk Premium” for West African crude.
• Brent crude reached $101 per barrel before dropping back to $97 a barrel as President Donald Trump expressed optimism about the prospect of a deal.
• The US government deployed thousands of troops to the region amid mixed signals about negotiations, raising fears that Trump could be preparing for a risky ground invasion he previously opposed. In efforts to end the nearly four-week-long conflict, Trump has advocated for negotiations with Iran.

According to the White House, the US has engaged in productive discussions with Iran over the past three days and has developed a plan requiring Iran to dismantle its main nuclear facilities and restrict its missile arsenal to self-defense.

• State-owned Press TV, citing an unidentified senior Iranian security official, reports that Iran also has its own ceasefire demands, including compensation for damages, recognition of its control over the Strait of Hormuz, and guarantees that the US and Israel will not launch new attacks.

Karoline Leavitt, the White House press secretary, insisted on Wednesday that US strikes were helping persuade the Iranian government to engage in negotiations. She claimed that the Iranian regime’s inability “to understand they have already been defeated” would be the reason for the failure to agree.

Conclusion

Markets project Nigeria’s oil production could reach 1.7 mbpd by Q4 if the new Presidential Petroleum Reform Taskforce, headed by Fola Adeola, can secure the needed $5–$10 billion in liquidity.

Resolving the NNPC-Dangote supply dispute could end the gasoline shortage and stabilize the downstream sector. Nigeria is currently “production-poor in a price-rich market “

The outlook for the remainder of 2026 will depend on the federal government’s capacity to translate policy reforms into more barrels of crude oil.

The high cost of refining Nigerian crude and the FG’s debt servicing will largely outweigh the benefits of $100 oil until production exceeds 1.8 million barrels per day.

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