Oil-price and Exchange-rate Uncertainty: Implications for Trade Transactions in Nigeria

Nigeria’s external trade is shaped by two closely related but distinct sources of risk: fluctuations in global oil prices and instability in the naira exchange rate. This study examines how these uncertainties affected merchandise trade transactions in Nigeria between 2000 and 2024. Annual data on exports, imports, the official exchange rate, real economic growth and inflation were obtained from the World Development Indicators, while daily Brent crude oil prices were sourced from the U.S. Energy Information Administration. Oil-price uncertainty was measured using the annualized volatility of daily Brent price returns, while exchange-rate uncertainty was represented by the absolute annual change in the official naira–dollar exchange rate. The study applied growth regression models with standard errors adjusted for heteroskedasticity and autocorrelation. It also separated changes in oil-price levels from oil-price uncertainty and conducted several robust tests covering exports, imports, control variables and changes in exchangerate uncertainty. The findings show that a 10-percentage-point rise in oil-price uncertainty is associated with a 1.81- percentage-point decline in total trade growth. Comparable increase in exchange-rate uncertainty is linked to a 2.49- percentage-point reduction in trade growth. Oil-price uncertainty has a stronger effect on exports, while exchange-rate uncertainty mainly weakens imports. However, increases in oil prices are positively associated with trade growth because crude oil continues to account for a large share of Nigeria’s export earnings. The study therefore recommends more predictable foreign-exchange policies, transparent management of oil revenue and sustained efforts to expand non-oil exports.