Navigating the Storm: Expert Strategies for Nigeria’s Soaring Petrol Prices
As global oil markets continue their volatile dance, Nigerians are facing the harsh reality of escalating petrol prices. Despite being an oil-producing nation with a functional refinery, the cost of Premium Motor Spirit (PMS) has surged to between N1,300 and N1,400 per litre, exacerbating the cost of living crisis. Energy experts are now weighing in, proposing a multi-pronged approach for the federal government to mitigate this impact without disrupting the market.
The consensus among analysts is that while Nigeria cannot entirely escape the tremors of global crude oil shocks, strategic policy interventions can effectively moderate the fallout and address underlying structural inefficiencies that contribute to persistently high prices. The current surge in PMS prices, amplified by geopolitical tensions in the Middle East, underscores the urgency of these recommendations.
Addressing Immediate Vulnerabilities: Policy Failures and Domestic Refining
Dr. Marcel Okeke, a Nigerian energy expert and economist, points to a history of policy missteps as a primary driver of the current crisis, rather than solely external factors. He argues that the persistent rise in petrol prices is a stark reflection of deep-seated vulnerabilities within Nigeria’s oil and gas framework, most notably the sustained failure to maintain functional domestic refining capacity.
“Whatever we are seeing now, it is the outcome of policies,” Dr. Okeke stated. “Not all oil-producing countries are equally affected or affected to the same degree. If our Nigerian refineries had been working, functioning, do you think we would be in this situation? This is peculiar to us.”
He also criticised the implementation of the naira-for-crude policy, deeming it a missed opportunity to stabilise the domestic fuel market. The intended mechanism of this policy was for local refineries to purchase crude oil in naira, thereby alleviating pressure on foreign exchange demand. “The way it is supposed to work is that local refineries will be getting crude oil here and paying in naira,” Dr. Okeke explained.
However, a significant hurdle has emerged: Nigeria’s crude oil output is heavily committed to servicing past debts, leaving insufficient supply for domestic refining. “The situation now is such that even the crude that is being produced here… has been mortgaged to take loans… so that even as they are being produced, they are being used to service those loans. And that is why Dangote, instead of getting the crude here locally, is importing from other places.”
To navigate this crisis, Dr. Okeke advocates for decisive executive action, including temporary policy adjustments to prioritise domestic supply. He specifically suggests invoking “force majeure,” a recognized mechanism in the oil industry, to temporarily suspend certain obligations and redirect resources to meet local needs. “You can declare what is called a force majeure… that you are unable to meet this… because of this situation… so that you can meet this local contingency now.” He expressed concern, however, that the government has not yet adopted such a proactive approach despite the severity of the situation. “But the President is not looking in that direction. He doesn’t seem to be thinking in that regard.” The expert warned that inaction could lead to widespread economic disruption, including business closures, reduced productivity, and escalating inflation.
Medium-Term Strategies: Competition, Subsidies, and Reserves
Professor Dayo Ayoade, an energy law expert at the University of Lagos, acknowledges the unrealistic expectation of completely insulating Nigeria from global price swings. He reiterates that petrol price fluctuations are primarily driven by international developments, independent of domestic factors like the Dangote Refinery’s operations.
“There are no easy solutions or answers in which the federal government can use to insulate Nigeria from a global crisis,” Professor Ayoade observed. “This fluctuating price is driven by international events and not local events in Nigeria and not with Dangote refineries.”
However, he proposes immediate actions the government can take. One key recommendation is for the Nigerian Midstream and Downstream Petroleum Regulatory Agency (NMDPRA) to conduct a competition investigation into Dangote refineries to ensure there is no excessive profiteering. Beyond this, he considers targeted subsidies as a potential option, though he cautions against returning to outdated economic models.
Professor Ayoade also suggests the establishment of a price stabilization fund to cushion the impact of crises, but with a caveat regarding potential mismanagement in Nigeria. “It would be abused, as usual, in Nigeria with our limited governance.”
He advocates for continued investment in Compressed Natural Gas (CNG) as an alternative fuel source. Furthermore, he highlights the provisions within the Petroleum Industry Act (PIA) 2021 for setting up strategic petroleum reserves. “The PIA 2021 has actually told us to set up strategic reserves, petroleum reserves. So, if you set up a 60-day PMS stock reserve, that will limit some of the price shocks.”
Long-Term Resilience: Supply, Forex, and Diversification
Professor Wumi Iledare, a distinguished professor of petroleum economics, reinforces the understanding that Nigeria operates within a global oil market system and cannot entirely isolate itself from international price trends. “Nigeria cannot fully insulate PMS prices from global crude oil volatility because petroleum products are internationally traded commodities.”
Despite this reality, Professor Iledare emphasizes that the government retains the capacity to mitigate the severity of price shocks through well-designed, non-distortionary policies.
- Tax and Pricing Policy Flexibility: Temporary suspension or adjustment of Value Added Tax (VAT) and selected levies during extreme price spikes can offer short-term relief without permanently distorting market signals.
- Targeted Demand-Side Measures: Instead of price controls, efficient interventions like transport vouchers for low-income commuters, support for mass transit systems, and flexible work policies (staggered or remote work) can reduce fuel demand pressure in the short term. These measures would provide relief to vulnerable populations without undermining the broader market structure.
A critical area requiring immediate attention, according to Professor Iledare, is domestic supply resilience, which remains a weakness despite Nigeria’s significant oil production status.
- Deepening Domestic Supply Resilience: Ensuring a consistent crude supply to local refineries (including Dangote), improving logistics, pipeline security, and storage capacity are crucial steps to reduce supply bottlenecks that amplify price spikes.
- Foreign Exchange Stability and Market Confidence: Policy must prioritize foreign exchange stability. Even with local refining, exchange rate volatility significantly influences cost expectations and downstream pricing behaviour.
Looking ahead, Professor Iledare stresses that Nigeria’s long-term strategy must extend beyond petroleum if sustainable price stability is to be achieved. This implies a broader economic diversification strategy to reduce reliance on oil revenues and insulate the economy from global commodity price fluctuations.
