When oil prices rise, do Nigerians really gain?

Nigerians’ experience with global oil price jumps has been mixed. High prices raise expectations of improved living standards through higher public spending, but the prospect is often dashed. The hope that higher oil revenue would improve the lives of Nigerians in practical terms becomes a mirage. Could this be the same this time with the […]

Nigerians’ experience with global oil price jumps has been mixed. High prices raise expectations of improved living standards through higher public spending, but the prospect is often dashed. The hope that higher oil revenue would improve the lives of Nigerians in practical terms becomes a mirage. Could this be the same this time with the war in the Gulf Region?

As in previous cases, the global oil markets have once again been shaken by geopolitical tensions in the Middle East. Each escalation in the region tends to reverberate through energy markets, and the latest crisis has been no exception. Brent crude has surged above $100 per barrel, a level not seen for some time.

For Nigeria, such moments often trigger familiar expectations. The federal budget for the year was based on a benchmark oil price of about $64 per barrel, later revised down to $60 per barrel by the Senate. With global prices now trading far above the benchmark price, Nigerians can once again expect that their country is on the verge of a major revenue boost.

On paper, these considerations look exciting for Nigeria. Every dollar increase above the benchmark price should generate additional oil income for the government. With Brent more than $30 above the budget assumption, Nigeria appears positioned to earn significantly more than anticipated. However, Nigeria’s recent economic history suggests that the relationship between higher oil prices and broader national prosperity is far more complicated.

Nigeria has faced similar events several times in the past. Oil prices surged during the Gulf War, which began on August 2, 1990, after Iraq’s invasion of neighbouring Iran. Oil prices also increased during what is commonly called the commodity boom of the 2000s, driven by China’s demand for commodities as it started its economic growth. Prices of oil, metals, and chemicals spiked as demand grew. Likewise, commodity prices rose during the global supply disruptions following Russia’s invasion of Ukraine. Each period raised hopes that higher crude earnings would improve government finances and bring real benefits to citizens. Yet these expectations often turned out to be overly optimistic. The 1990-91 Gulf War excess revenue remains a mystery to many Nigerians who witnessed the events.

Why haven’t these oil price spikes helped Nigeria? One lies in production. Oil income depends not only on price but also on the number of barrels Nigeria can produce and export. Over the past decade, production has repeatedly fallen below both national targets and the country’s quota under OPEC agreements. The reasons for this shortfall have been many, ranging from pipeline vandalism to crude theft, operational disruptions, and underinvestment in infrastructure, which have all contributed to weaker output.

In some months, Nigeria’s production has dropped close to 1.2 million barrels per day, which is far below the levels that once underpinned the country’s oil earnings. When production is constrained, higher prices cannot fully translate into higher revenues.

There is also the complicated structure of Nigeria’s public finances. Oil revenues flow into the federation account and are shared among the federal, state, and local governments. Significant portions are also absorbed by operational costs, joint venture arrangements, and debt obligations. By the time these revenues pass through the system, the fiscal space available for transformative investment is often smaller than the headline oil price might suggest.

There is also a timing issue that is frequently overlooked. Oil revenue does not immediately rise the moment global prices increase. Export contracts, shipment schedules, and fiscal settlement mechanisms mean that changes in price take time to filter into government accounts.

However, the most important issue probably is how Nigeria uses periods of higher oil income. Historically, oil booms have provided temporary fiscal breathing space rather than opportunities for structural reform. When revenues rise, governments often increase spending, postponing difficult policy decisions, including the nagging question of economic diversification. At such times, the government embarks on expanded fiscal commitments that are unsustainable once oil prices fall again.

This produced the familiar cycle of higher oil prices bringing short-term relief, and when the market eventually turns, fiscal pressures return. Consequently, the country’s broader economic structure has remained largely unchanged despite decades of oil income. Infrastructure gaps persist, manufacturing remains weak, and export diversification has progressed slowly.

This is why the current surge in oil prices raises a deeper question. For instance, if Nigeria earns more from crude exports in the coming months will the additional income translate into meaningful improvements in the lives of ordinary citizens? Will it strengthen infrastructure, support productive sectors, or reduce the country’s reliance on borrowing? Or will it simply provide another temporary cushion for public finances?