Naira Plummets Across Forex Markets Amid Pipeline Explosion and Oil Sector Headwinds

On Tuesday, the Nigerian naira experienced a decline, losing value against the US dollar in both official and unofficial foreign exchange markets. This downturn is primarily linked to a reduction in dollar inflows from the previous week, which amounted to $1.0 billion—a 25.4% decrease from the $1.34 billion recorded the week before, as reported by Coronation Asset Management.

Additionally, the naira’s depreciation was intensified by a pipeline explosion on the Trans Niger Pipeline (TNP), which has a capacity of around 450,000 barrels per day. This event has raised alarms regarding potential environmental harm and economic repercussions, which could further impact the supply of dollars to the economy.

Impact on the economy

Concerns regarding Nigeria’s economic prospects have intensified following a pipeline explosion and challenges within the oil sector. The country’s oil industry is currently grappling with difficulties, as evidenced by the unsold crude cargoes from March 12, which underscore a lack of demand for Nigerian exports.

As of March 10, traders indicated that efforts were still underway to find buyers for these cargoes, with a significant portion of the April export schedule remaining unfilled, according to data from Argus. This situation raises alarms about the potential repercussions for Nigeria’s oil revenue, a critical component of the nation’s foreign exchange earnings.

Additionally, the downturn in oil prices has adversely impacted Nigeria’s budget, which was set with a benchmark of $70 per barrel. With Brent crude currently priced at approximately $70.82 per barrel, the budget may encounter substantial difficulties, potentially hindering public spending and economic growth.

The oil market has been marked by considerable volatility, driven by concerns over weak demand, escalating trade tensions, and the increase in OPEC+ production quotas. Consequently, Brent crude prices have decreased by 2.4% week-on-week, falling from $72.49 to $70.82 per barrel.

Market Reaction

In the parallel market, the naira concluded trading at N1,580, reflecting a decline of N5 from the previous day’s rate of N1,575. Conversely, the local currency gained N10 against the pound, trading at N2,040, while maintaining stability against both the euro and the Canadian dollar.

The recent decline in the naira’s value has sparked concerns among investors and businesses, prompting calls for immediate actions to stabilize the currency and tackle the fundamental economic issues. There is a growing demand for the Nigerian government to adopt policies that enhance investor confidence, promote economic growth, and decrease the nation’s dependence on oil exports.

In light of the ongoing economic difficulties, the Central Bank of Nigeria (CBN) has revealed plans to inject $10 billion into the foreign exchange market to stabilize the naira and foster economic growth. Additionally, the CBN has implemented measures to limit the availability of foreign exchange to importers of specific goods, aiming to preserve foreign exchange reserves and encourage local production.