Rising oil prices may ease Algeria’s budget strain, boost reserves

Rising oil prices are delivering mixed outcomes for African economies. While countries like Nigeria and Angola stand to gain, South Africa’s fragile recovery faces fresh pressure. For Algeria, the continent’s largest nation and the world’s 10th-largest by area, crude trading above $100 per barrel could temporarily ease budget strains as reserves shrink and import costs rise.

Algerian officials found a lifeline after Russia’s invasion of Ukraine drove energy prices higher, helping the country stabilize finances. Now, renewed price gains linked to the conflict in Iran may offer a similar reprieve. Algeria, home to 47 million people, depends heavily on its oil and gas reserves to fund subsidies.

Oil price spikes eases Algeria’s deficit worries

Since the 2014 oil price crash, maintaining a balanced budget has been increasingly difficult. To cover projected spending of 7.69 trillion dinars ($58.5 billion) in 2026—about 5% more than 2025—the government issued its first local sovereign Islamic bonds and pursued an African Development Bank loan for infrastructure.

Crude breached $100 per barrel on March 9 for the first time since Russia invaded Ukraine. Despite fluctuations, prices remain more than 50 percent higher than a year ago amid fears that Middle East tensions could disrupt supply.

Algeria earned $59.5 billion in oil revenue in 2022, dropping to $45 billion last year. With the budget based on a $70 per barrel benchmark, Minister of Hydrocarbons and Mines Mohamed Arkab has said a price between $70 and $80 would balance the books. “The rise in prices can only be a good thing,” said Mahfoud Kaoubi, an independent economist in Algiers.

Higher oil prices boost Algeria’s reserves

If oil climbs toward $120-$125 per barrel, Algeria could cover key expenditures, including salaries, pensions, unemployment benefits, and subsidies for staples like fuel, milk, cereals, and desalinated water.

In 2022, Europe relied on Algeria’s gas after diplomatic tensions with Morocco and Spain disrupted trade. Foreign reserves, which had fallen to $47.1 billion by October from over $66 billion at the start of 2025, could recover with sustained higher prices.

Yet experts caution that gains are temporary. “The energy price impact of the Iran war is not a solution for Algeria’s long-term need to diversify away from oil and gas,” said Hamish Kinnear, analyst at Verisk Maplecroft. Algeria ranks 15th of 193 countries for dependence on fossil fuel exports, underscoring the need for future reforms.

Crude prices boost Nigeria, Angola revenues

Elsewhere in Africa, oil exporters such as Nigeria and Angola stand to gain from higher crude prices through increased export revenue and stronger current-account balances. For South Africa, rising oil costs are likely to push up fuel prices, add to inflation, and strain an economy heavily reliant on imports.

Investors are watching developments in the Middle East, particularly tensions involving Iran, the U.S., and Israel, along with risks to the Strait of Hormuz. While elevated oil supports a small number of sub-Saharan economies, countries such as South Africa, Kenya, and the Democratic Republic of Congo may face higher import costs and inflationary pressures.