The depreciation of the Naira continues to shake Nigeria’s economic landscape, impacting various sectors, including oil trade. Nigeria, Africa’s largest oil producer, has found itself at the center of the ongoing global debate over de-dollarization, particularly within the BRICS coalition. Despite earlier interest in joining BRICS and supporting local currency transactions, Nigeria is now resisting the push to settle oil payments in anything other than the US dollar.
In an attempt to strengthen the Naira and reduce reliance on foreign currencies, the Nigerian government introduced a Naira-for-crude transaction framework. However, this move has been met with strong opposition from key stakeholders in the oil sector. According to Olufemi Adewole, Executive Secretary of the Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN), settling oil transactions in Naira could destabilize the foreign exchange market and deter much-needed foreign direct investment (FDI).
“The naira-for-crude oil transaction framework presents significant risks that could affect Nigeria’s foreign exchange stability and deter foreign direct investment. The global oil market operates in US dollars due to its stability,” Adewole stated.
This sentiment echoes the broader challenges faced by BRICS in pushing for de-dollarization. Even Saudi Arabia, which had previously expressed openness to accepting local currencies for oil payments, continues to conduct most transactions in US dollars.
Traders Union argues that the volatility of the Naira makes it an unattractive option for international trade, especially in the energy sector, where stability is crucial. Over the past year, Nigeria’s currency has suffered significant losses, leading to increased import costs, inflation, and economic uncertainty. If oil marketers were to accept the Naira for crude exports, they would expose themselves to high risks of currency depreciation, making transactions unpredictable and costly.
Moreover, Nigeria’s dependence on oil revenue means that any policy affecting oil trade has direct consequences on government earnings. With the Naira weakening against the dollar, accepting local currency payments for crude would further strain foreign reserves, making it difficult for the country to meet external obligations.
Despite BRICS’ push to challenge US dollar dominance, Nigeria is now aligning with other developing nations that view de-dollarization as a risky endeavor. The country’s economic stability remains closely tied to the dollar, making it difficult to adopt BRICS’ vision of trading oil in local currencies.
While BRICS has made strides in reducing dollar reliance, its oil trade policies are yet to gain widespread acceptance. Nigeria’s reluctance to trade oil in Naira highlights the practical challenges of de-dollarization — without a stable alternative, the greenback remains king in global oil markets.
Naira’s depreciation is a key factor in Nigeria’s rejection of local currency oil trade. The risks of currency instability, inflation, and declining FDI outweigh the potential benefits of de-dollarization. As BRICS continues its mission to challenge dollar dominance, Nigeria’s stance signals that transitioning to local currencies in global oil markets may take longer than expected. For now, the US dollar remains the preferred medium for oil trade, reinforcing its stronghold over international finance.
