Rising reserves, stronger crude output and improved oil receipts have strengthened Nigeria’s external position, but economists say persistent dollar demand, imports and structural weaknesses continue to limit the naira’s appreciation.
Nigeria’s foreign exchange position has strengthened considerably in recent months, with external reserves approaching $54 billion and crude oil production recovering from years of underperformance. Yet, despite the improvement in dollar earnings, the naira has continued to trade above N1,300 to the dollar, leaving many Nigerians questioning why increased foreign exchange inflows have not translated into a much stronger currency.
The question has gained traction among Nigerians, particularly on social media, where expectations of a stronger naira have grown alongside the rise in foreign exchange reserves. Some have asked why the currency has not appreciated to around N1,000/$, arguing that increased oil earnings should naturally result in a stronger exchange rate and cheaper goods and services.
But economists and foreign exchange operators say the relationship between oil earnings, reserves and the exchange rate is far more complicated.
They explained that while stronger oil revenues provide an important buffer for the economy, the naira is also influenced by the volume of dollars demanded by importers, travellers, students, businesses and other users of foreign exchange.
Nigeria’s external reserves stood at about $53.9 billion as of September 1, while the naira closed at N1,324.50/$ on September 2. In contrast, the parallel market continued to trade around N1,400–N1,410/$, showing that underlying demand pressures remain despite the recent improvement in the official market.
Oil revenues rise as production improves
The improvement in Nigeria’s external position has coincided with stronger oil production and elevated earnings by the Nigerian National Petroleum Company Limited (NNPC Ltd).
NNPC’s monthly revenue increased from N2.57 trillion in January 2026 to N4.97 trillion in April. Although receipts moderated afterwards, they remained substantial, standing at N4.34 trillion in May, N4.39 trillion in June and N3.09 trillion in July.
Crude oil and condensate production also improved during the first seven months of the year.
Production averaged 1.64 million barrels per day in January, before falling to 1.51 million barrels per day in February. It subsequently recovered to 1.56 million barrels per day in March, 1.68 million barrels per day in April, 1.73 million barrels per day in May and 1.72 million barrels per day in June. Output eased slightly to 1.68 million barrels per day in July.
The improvement is significant for an economy that has struggled for years to meet its OPEC production quota because of crude oil theft, pipeline vandalism, underinvestment and operational disruptions.
The National Bureau of Statistics also reported a significant improvement in the performance of the oil sector. The sector grew by 7.31 per cent year-on-year in the second quarter of 2026, compared with 2.57 per cent in the first quarter.
However, the latest growth remained below the 20.46 per cent recorded in the corresponding quarter of 2025.
On a quarter-on-quarter basis, the oil sector expanded by 10.91 per cent, while its contribution to real GDP rose to 4.16 per cent in Q2 2026, from 4.05 per cent a year earlier and 3.92 per cent in Q1.
The wider economy also recorded stronger growth, with real GDP expanding by 4.43 per cent year-on-year in Q2 2026, compared with 4.23 per cent in Q2 2025.
Why rising reserves have not produced a stronger naira
According to economists who spoke separately to Nairametrics, the central issue is the difference between foreign exchange earnings and the amount of dollars that actually becomes available to participants across the broader FX market.
Dr Yusha’u Aliyu, a researcher at the Abuja-based Institute for Professional Economists and Policy Management, said Nigeria’s oil performance should not be viewed in isolation when assessing the value of the naira.
“You see, the behaviour of the oil market does not determine the value of the domestic currency in particular. What normally assists the naira is the stability of our appetite for foreign consumption of different goods and services,” Aliyu said.
He explained that higher crude oil earnings could be offset by the country’s continued demand for imported goods and services.
“It is a paradox. What normally happens is that whatever policy you put in the economy depends on another policy,” he said.
Aliyu argued that efforts to boost domestic production could lose some of their benefits if manufacturers, farmers and other sectors continue to depend heavily on imported inputs.
“If you have high demand, definitely, the supply function will contract. Invariably, if you are still importing for agriculture, you require exchange rates,” he said.
The implication is that Nigeria can simultaneously increase its dollar earnings from crude oil and increase its demand for dollars through imports.
In such circumstances, additional oil-related inflows may simply satisfy existing foreign exchange demand rather than generate enough surplus supply to push the naira sharply higher.
Productivity and import substitution remain critical
Dr Yusuf AbdulMarouf of the University of Abuja similarly argued that a rise in foreign reserves should not automatically be interpreted as a guarantee of sustained naira appreciation.
“In essence, naira strength depends on domestic productivity and the economy’s capacity for import substitution,” AbdulMarouf said.
He said the government would also need to address excessive money supply growth, fiscal deficits and surplus naira liquidity if it wants to maintain currency stability over the long term.
“If naira liquidity continues to grow faster than the supply of foreign exchange, the pressure on the currency will remain. Oil revenue can provide a buffer, but it cannot substitute for stronger domestic production and exports.”
AbdulMarouf said higher oil receipts could strengthen Nigeria’s external buffers without all the additional earnings immediately entering the spot foreign exchange market.
Some proceeds may strengthen official reserves, while other funds may be used to meet government obligations and external payments.
At the same time, the country’s dependence on imported goods and services continues to create substantial demand for dollars.
“Crude production also remains important because higher oil prices alone cannot guarantee a sustained increase in export earnings,” he noted.
He added that a more meaningful impact on the naira would depend on a combination of higher production, favourable oil prices and the government’s ability to retain more export proceeds.
“Higher oil earnings are positive, but they do not automatically mean the naira will appreciate. Oil revenue is only one component of the FX equation,” he said.
“If production increases, oil prices remain favourable and the government is able to retain more export proceeds, then the effect on the naira can become more meaningful. But if import demand and other dollar obligations rise at the same time, the additional supply can be absorbed.”
CBN interventions continue to influence the market
Aliyu also pointed to the role of the Central Bank of Nigeria in managing the foreign exchange market and limiting excessive volatility.
“The CBN is still giving interventions to keep the naira as it is because windows that we previously closed are now strategically modified,” he said.
According to him, the interventions are important because of the connection between exchange-rate movements and inflation.
“Those windows are necessary in order to maintain the rate at which the dollar and naira is being exchanged so that inflation can be controlled,” Aliyu said.
The Central Bank has also maintained a tight monetary policy stance, with the Monetary Policy Rate held at 26.50 per cent at its July 2026 meeting.
The combination of monetary policy, FX interventions and improved external reserves has helped reduce some of the extreme volatility previously experienced in the currency market.
However, analysts caution that market stability should not be confused with a major appreciation of the naira.
BDC operators still see strong dollar demand
The experience of Bureau de Change operators also suggests that demand for foreign exchange remains significant.
An Abuja-based BDC operator, Abubakar Sa’ad, said the calmer market conditions should not be interpreted as evidence that demand for dollars has disappeared.
“The demand for dollars is still there. What has changed is that the market is more stable and there is less panic than before,” Sa’ad said.
He said customers continue to approach BDC operators for dollars to meet travel expenses, school fees, medical bills and business obligations.
“When people need dollars and they cannot get them easily through the official channels, they come to us. So even when the country’s reserves are increasing, that does not mean every customer will immediately have access to dollars at the official rate.”
Sa’ad said the difference between the official and parallel-market rates remains an important indicator of underlying pressure in the foreign exchange market.
“What we want to see is more liquidity and less difference between the two markets. That is when you can say the fundamentals are improving across the market.”
Fuel imports remain a structural challenge
For Dr David Aheruvoh, a Fellow of the Institute for Chartered Accountants of Nigeria (ICAN) and the Institute of Chartered Economists of Nigeria (ICEN), Nigeria’s energy structure remains an important factor in understanding the country’s foreign exchange pressures.
Aheruvoh criticised the simultaneous removal of the petrol subsidy and the floating of the naira, arguing that the combination placed significant pressure on households and businesses.
“Immediately this government came in, I said we have made a mistake to remove [fuel] subsidy. And that was a disaster. Shortly after this, the CBN floated the naira. This means you are breaking your both legs. The resultant effect is that the person will stay crippled,” he said.
He argued that expanding domestic refining capacity would help reduce Nigeria’s dependence on imported petroleum products and, consequently, reduce some of the foreign exchange demand associated with fuel imports.
“We need to put the refineries in place or authorise the modular refineries to produce more,” he stated.
The argument underscores a broader issue confronting the naira: Nigeria earns a significant portion of its foreign exchange from crude oil but has historically depended on imports for a substantial share of its refined petroleum products and other goods.
Stabilisation, not a dramatic appreciation
The recent movement of the naira suggests that the currency may be undergoing a period of stabilisation rather than a dramatic appreciation.
The naira strengthened from N1,329/$ on September 1 to N1,324.50/$ on September 2 in the official market. However, the parallel market remained around N1,400–N1,410/$.
For market participants, the continuing gap between the two rates shows that foreign exchange pressures have not disappeared.
“Stronger reserves, improved oil receipts and better FX-market conditions can reduce depreciation risks, while persistent demand for dollars limits the pace of appreciation,” Sa’ad noted.
This distinction is crucial. A currency does not necessarily need to return immediately to a much stronger level simply because a country’s reserves are rising.
Higher reserves can provide a stronger defence against external shocks, improve confidence in the economy and reduce the risk of a sudden currency crisis. But the exchange rate is determined by the broader balance between supply and demand for foreign currency.
For Nigeria, that means stronger oil earnings are only one part of the equation.
Unless higher export receipts are accompanied by greater domestic production, stronger non-oil exports, reduced dependence on imports and improved access to foreign exchange across the market, the additional dollars may continue to be absorbed by existing demand.
The road to a stronger naira
The growing foreign exchange reserves and improved oil production nevertheless represent a significant improvement in Nigeria’s external position.
The challenge is converting that improvement into a more durable strengthening of the domestic currency.
Economists argue that a sustainable appreciation of the naira would require more than higher crude oil earnings. It would depend on Nigeria producing more of the goods it currently imports, expanding non-oil exports, maintaining disciplined monetary and fiscal policies, increasing domestic refining capacity and ensuring that foreign exchange liquidity reaches the market efficiently.
For now, the evidence points to a more stable naira rather than a return to N1,000/$.
The rise in reserves has reduced some of the pressure on the currency, but persistent dollar demand continues to absorb much of the additional liquidity.
As Aliyu put it, Nigeria’s exchange-rate challenge is ultimately tied to the structure of the economy itself: earning more dollars is important, but reducing the economy’s need for those dollars may be just as important.
The question, therefore, may not simply be why higher oil earnings have failed to push the naira to N1,000/$.
It may be whether Nigeria can use the current improvement in its external position to build an economy that earns more foreign exchange while needing less of it to function.