J.P. Morgan warns buyers of rising dangers for Nigeria as oil costs fall and Trump’s tariffs unsettle markets
U.S. funding {bank} J.P. Morgan has urged buyers to exit lengthy positions in Nigerian Open Market Operation (OMO) payments, warning that world dangers—pushed by falling oil costs and renewed commerce tensions—may deepen Nigeria’s macroeconomic vulnerabilities.
In a analysis observe dated April 9, 2025 seen by Nairametrics, titled “Frontier Native Markets Technique: Decreasing danger additional,” the {bank} suggested purchasers to shut their positions in Nigerian T-bills as Brent crude oil approaches sub-$60 ranges.
J.P. Morgan, which had beforehand backed Nigeria’s carry commerce for its excessive yield and relative stability, has now shifted its stance, citing a altering world surroundings worsened by former President Donald Trump’s re-emergence as a number one candidate within the U.S. elections and his push for sweeping world tariffs.
Nigeria’s central {bank} had earlier within the month assured stakeholders that it anticipated an uptick in exterior reserves, after it declared a web of $23 billion
- “We anticipate a gradual uptick in reserves, underpinned by improved oil production ranges, and a extra supporting export development surroundings that’s anticipated to spice up non-oil FX earnings and diversify exterior inflows.”
It additionally just lately declared a steadiness of fee surplus of $6.83 billion on the finish of 2024, “signalling {economic} resurgence” and citing ongoing financial coverage reforms.
Oil under $60 threatens Nigeria’s exterior steadiness
Nonetheless, JP Morgan famous that if oil costs stay under $60 per barrel—the estimated breakeven worth for Nigeria—it may push Nigeria’s present account again into deficit.
This may place important stress on the naira and intensify the demand for greenback belongings. J.P. Morgan had earlier forecasted that in such a state of affairs, the USD/NGN alternate price may surpass the 1,700/$1 mark. The present alternate price trades round 1,500/$1, however is extremely depending on overseas inflows.
- “Whereas Nigeria could properly keep away from a recession itself,” the report acknowledged, “the substantial decline in oil costs under its break-even of US$60/bbl… would push Nigeria’s present account steadiness into deficit.”
In consequence, the {bank} has known as time on certainly one of its “highest conviction” trades in frontier markets.
CBN’s FX interventions ramp up
J.P. Morgan acknowledged the Central {Bank} of Nigeria’s proactive response in latest weeks, highlighting a 3.6% depreciation within the naira, which it considers comparatively reasonable.
- The CBN has reportedly bought about $550 million into the market in March to defend the foreign money, amid rising demand and dwindling provide.
- This pattern, the {bank} warns, may sign elevated capital flight, as overseas portfolio buyers may even see Nigeria as extra weak to exterior shocks—particularly if oil revenues decline additional.
- J.P. Morgan estimates potential portfolio outflows may whole as much as $10 billion, though a portion of this can be tied up in non-public placements or illiquid belongings.
The scenario displays a crucial actuality for Nigeria: the FX market continues to be closely reliant on central {bank} assist, and any disruption to CBN greenback inflows—primarily from oil—may create panic in each foreign money and bond markets.
The CBN has reportedly bought about $550 million into the market in March to defend the foreign money, amid rising demand and dwindling provide. Nairametrics estimates this at over $1 billion this month.
Native market liquidity falters
The {bank} additionally noticed that whereas the FX market has remained comparatively secure, Nigeria’s home fixed-income market has proven indicators of stress.
- Liquidity for OMO and T-bills has been notably weak, with yields rising by as a lot as 300 foundation factors in latest weeks.
- This alerts reluctance amongst buyers to soak up short-dated authorities securities, possible on account of inflation considerations, overseas outflows, and oil worth uncertainty.
- To cushion the market and forestall disorderly worth actions, the central {bank} has been pressured to intervene extra actively—both by injecting liquidity or collaborating immediately in auctions to make sure bid-cover ratios are met.
What this implies for Nigeria
J.P. Morgan’s warning highlights the delicate steadiness Nigeria is strolling in 2025. The nation’s reform agenda—significantly the unification of its FX price and removing of gas subsidies—had earned it optimistic consideration in world markets final 12 months.
However the mixture of falling oil costs and rising geopolitical tensions now threatens to undo a lot of that progress.
- The federal government had hoped for elevated FX inflows by way of oil exports and multilateral assist. Nonetheless, with oil costs falling and no clear path to different income streams, the stress on fiscal and exterior balances is more likely to develop.
- For buyers, the warning is stark: Nigeria’s asset costs are extremely delicate to world situations, significantly oil.
With Trump’s proposed world tariffs casting a shadow over rising markets and Brent crude slipping nearer to sub-$60, Nigeria’s greenback liquidity and foreign money stability are beneath threat.
Regardless of the near-term dangers, J.P. Morgan maintains a medium-term constructive view on Nigeria. The {bank} believes that Nigeria will proceed on its reform path, permitting the alternate price to seek out market-clearing ranges and decreasing its dependence on gas subsidies.
It additionally expects the federal government to rely extra on home income mobilization, together with proceeds from the oil sector by way of the now-commercialized Nigerian Nationwide Petroleum Firm Restricted (NNPC). Nonetheless, that restoration is contingent on increased oil costs and continued macroeconomic self-discipline.
The funding {bank} concluded that the outlook for Nigeria relies upon largely on how properly the nation can stand up to exterior shocks and maintain its reform agenda amid world headwinds.
