Nigeria’s Energy Sector in Crisis, NNPC’s Suspension of Naira-for-Crude Deal Sparks Concern

The Nigerian National Petroleum Company’s (NNPC) sudden suspension of its naira-for-crude oil swap deal with domestic refiners, including Dangote Refinery, has sent shockwaves through Nigeria’s energy sector and broader economy. This move is expected to have significant implications, particularly with local refiners now forced to source crude oil in dollars, potentially leading to higher fuel prices at the pump.

The naira-for-crude arrangement, introduced in October 2024, aimed to support domestic refining capacity, reduce reliance on imported petroleum products, and stabilize the local currency. However, the NNPC has reportedly forward-sold all its crude supplies until 2030, leaving no supply available for domestic refineries.

This decision has raised concerns about the impact on Nigeria’s foreign exchange market. Economists warn that the removal of this dollar-saving mechanism could exacerbate the currency’s volatility ¹ ². The suspension of the naira-for-crude deal has also thrown into jeopardy the goals of supporting domestic refining capacity, reducing reliance on imported petroleum products, and stabilizing the local currency.

Dangote Refinery, a key beneficiary of the naira-for-crude deal, is reviewing its options in response to this sudden shift in policy. The refinery’s pricing model has also been a subject of controversy, with the NNPC announcing that it purchased fuel from the refinery at ₦898 per litre, which Dangote Group described as “misleading and mischievous”.

The implications of this decision are far-reaching, with local refineries now forced to source crude oil from international suppliers, paying in dollars instead of naira. This shift is likely to increase operational costs, potentially leading to higher fuel prices at the pump. Industry stakeholders are closely monitoring the situation, with many expressing concerns about the potential impact on the economy.

In the broader context, Nigeria’s economy is heavily reliant on oil exports, with fluctuations in global oil prices having a significant impact on the country’s revenue and foreign exchange reserves ¹. The government’s decision to remove fuel subsidies in 2023 has also had a significant impact on the economy, with inflation surging to 27.5% in August 2024.

As the situation continues to unfold, one thing is clear: the suspension of the naira-for-crude deal will have significant implications for Nigeria’s energy sector and broader economy. With local refineries now forced to source crude oil in dollars, operational costs are likely to escalate, potentially leading to higher fuel prices at the pump. The impact on Nigeria’s foreign exchange market also remains a concern, with economists warning that the removal of this dollar-saving mechanism could exacerbate the currency’s volatility.