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Nigeria’s naira strengthened to its best level against the US dollar in two years on Friday, touching N1,344.74 to the dollar at the official Nigerian Foreign Exchange Market window as a sustained oil price rally above the government’s budget benchmark, surging external reserves, and structural reforms introduced by the Central Bank of Nigeria converged to produce what analysts described as the most stable macroeconomic moment the country has experienced since before its 2023 currency crisis.
The naira opened at N1,344.74 per dollar on Friday morning, reaching a high of N1,345.58 before settling near N1,345.40 by midday, a continuation of the appreciation that saw it close at N1,346 on Thursday, its strongest sustained performance in the official window in over two years. The improvement has been sharp and consistent. In late January, the currency was trading above N1,420 to the dollar. On February 12, it touched a two-year high near N1,348.95, and has held close to that range since.
The parallel market has followed suit. By mid-February, the street rate had settled between N1,425 and N1,440, a dramatic compression from the crisis levels of 2024, when the spread between the official and black market rates exceeded 60 per cent at its worst. By December 2025, that premium had narrowed to just over two per cent.
Nigeria’s gross foreign reserves rose to $48.37 billion as of February 16, a $2.47 billion increase in a single month, and the highest level the country’s reserve position has reached since 2018. The trajectory of the recovery illustrates the scale of the reversal. Reserves had fallen to $37.21 billion in June 2025 before a sustained climb through the second half of the year, rising through $39 billion in July, $41 billion in August, $42 billion in September, $43 billion in October, and $44 billion in November. By December 31 they had reached $45.50 billion, and by February 16 they had surged further. At the current level, reserves now provide more than 14 months of import cover, a dramatic improvement from the eight months of coverage recorded in mid-2025, when the naira was weakening past N1,600 to the dollar.
Oil prices have provided a significant tailwind. Brent crude traded at approximately $69 per barrel this week, comfortably above Nigeria’s 2026 federal budget benchmark of $64.85 per barrel, a threshold whose breach translates directly into higher fiscal receipts, stronger export earnings, and expanded dollar inflows through the NNPCL and the federation account. For an economy where oil accounts for more than 80 per cent of foreign exchange earnings and roughly half of government revenues, every dollar increase above the benchmark compounds the revenue effect across multiple channels simultaneously.
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The rally has been driven by geopolitical risk premium stemming from escalating US–Iran tensions, compounded by temporary supply disruptions, unplanned production outages in Kazakhstan and weather-related disruptions to US output from Winter Storm Fern. Analysts have raised the possibility of more dramatic price spikes if the confrontation deteriorates. A disruption to the Strait of Hormuz, the chokepoint through which approximately 20 per cent of global oil supply passes, could, according to modelled scenarios circulating among energy traders, push Brent to $91 or as high as $150 per barrel within weeks. For Nigeria, that would represent an extraordinary windfall. For global energy markets, it would be destabilising.
Multiple structural reforms have amplified the effect of the commodity price tailwind. CBN Governor Olayemi Cardoso said at a recent industry event that the current account surplus strengthened by over 85 per cent in 2025, and that the reserve build-up was being achieved organically, through improved market functioning, stronger non-oil exports, and robust capital inflows, rather than through borrowing. Monthly diaspora remittances have surged by 200 per cent, rising from approximately $200 million to $600 million per month, according to Cardoso. The CBN’s decision to authorise weekly dollar sales of up to $150,000 to each licensed Bureau De Change operator has deepened liquidity in the retail segment of the market and contributed to narrowing the official-parallel rate spread.
Additional inflows have come from a $2.5 billion drawdown from the IMF’s Rapid Financing Instrument in late 2025, World Bank facility disbursements, and Eurobond issuances totalling $3.3 billion in January 2026. Foreign portfolio investment into Nigerian Treasury bills, lured by benchmark interest rates above 20 per cent, has added further dollar supply.
Market analysts, however, are careful not to declare the structural challenge resolved. Bismarck Rewane, Managing Director of Financial Derivatives Company, told the Association of Corporate Treasurers of Nigeria’s 2026 Economic Outlook that the naira, despite its recent rally, remains undervalued relative to where economic fundamentals suggest it should trade. Using a purchasing power parity framework, he estimated the fair value of the currency at N1,256.79 to the dollar, implying the current official rate of around N1,345 still represents an undervaluation of approximately 11 per cent. PPP models, he noted, typically require five years to fully assert themselves in currency pricing.
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Analysts have also flagged structural vulnerabilities that could interrupt the recovery. Oil theft continues to depress production, with output running at approximately 1.3 million barrels per day in early 2026, well below Nigeria’s OPEC quota and the government’s budget assumptions. Crude production did reach 1.46 million barrels per day in more recent estimates, providing the CBN with additional firepower to intervene when necessary, but the gap between actual and potential output remains a persistent drag. Any reversal in global oil prices, whether from a de-escalation of the Iran crisis, a demand shock, or an OPEC+ policy shift, would also test how much of the naira’s recovery is structural and how much remains commodity-dependent.
The CBN’s benchmark interest rate stands at 27.5 per cent, a level that has attracted significant foreign portfolio inflows but has also kept borrowing costs elevated for domestic businesses. The CBN projects external reserves will reach $51.04 billion by the end of 2026 if oil earnings and foreign inflows hold at current trajectories.
The next Monetary Policy Committee meeting, at which the CBN will assess whether the conditions warrant any adjustment to the benchmark rate, is scheduled for the coming weeks. Markets will be watching both that decision and the trajectory of Brent crude for guidance on how durable the current period of naira stability is likely to prove.
