Nigeria’s foreign exchange environment is showing signs of a sustained recovery as reforms by the Central Bank of Nigeria (CBN) converge with rising global oil prices to strengthen the naira, rebuild external reserves, and restore investor confidence. Brent crude is trading above the Federal Government’s 2026 budget benchmark of $64.85 per barrel, hovering around $69, improving Nigeria’s revenue prospects and easing pressure on dollar liquidity just as FX market restructuring begins to yield results.
Oil prices have climbed for three consecutive sessions amid escalating geopolitical tensions in the Middle East, particularly concerns surrounding Iran and the Strait of Hormuz, a critical route for about 20 per cent of global oil supply. Analysts note that the rally reflects a geopolitical risk premium rather than fundamental supply shortages, but warn that any major disruption could send prices sharply higher. For Nigeria, where oil still accounts for over 80 per cent of foreign exchange earnings, higher crude prices translate directly into stronger FX inflows and improved balance-of-payments support.
These tailwinds have coincided with a notable improvement in the naira’s performance. In the official foreign exchange market, the currency appreciated below the psychologically important N1,400-to-the-dollar mark by the end of January 2026, closing at N1,386.55/$ after weeks of steady gains. Analysts say the gradual nature of the appreciation suggests improved price discovery and liquidity rather than artificial support, while the narrowing gap between official and parallel market rates points to reduced arbitrage and stronger confidence in the reformed FX framework.
Nigeria’s external reserves have also climbed sharply, reaching about $46.11bn by late January 2026 — their highest level in nearly eight years. The CBN says the buildup is organic, driven by stronger oil receipts, rising non-oil exports, renewed portfolio inflows, and growing diaspora remittances returning to official channels. Foreign capital inflows rose nearly 70 per cent in 2025, while the gap between official and parallel exchange rates has narrowed to under two per cent, a stark contrast to previous years of extreme distortions.
Economists caution, however, that oil prices alone cannot guarantee long-term FX stability. They argue that the durability of current gains depends on policy discipline, fiscal-monetary coordination, and sustained reforms, particularly during an election cycle. With subsidy removal, FX liberalisation, tighter governance, and improved transparency now in place, analysts say Nigeria’s foreign exchange outlook is being reshaped — but its success will ultimately hinge on consistency when external conditions inevitably change.
source: punch