Fuel Price Hike Looms as Nigeria Ends Naira-for-Crude Deal, Disrupting Supply Chain
The Nigerian National Petroleum Company (NNPC) introduced the naira-for-crude deal with local refineries 5 months ago to ease pressure on foreign exchange and lower prices.
When Nigeria officially began selling crude oil and refined petroleum products in naira to local refineries on October 1, 2024, it sparked high expectations for price stability and a more efficient supply chain. The naira-for-crude deal initially provided relief, with Dangote Refinery chosen as the first recipient, receiving the initial cargoes of crude oil from NNPC in October.
However, the arrangement proved unsustainable, as Dangote Refinery reportedly raised concerns about NNPC failing to uphold its end of the agreement after just one month. This latest setback could have significant consequences for millions of Nigerians, as local refineries—including Dangote—will now have to depend on international suppliers for crude feedstock, leading to increased costs due to dollar-denominated transactions.
NNPC has reportedly informed local refineries that it has already sold its crude in advance, even though current production levels are higher than when the naira-for-crude deal first began. As a result, petrol pump prices are expected to rise further.
According to The Cable, there has been no official statement from Dangote Refinery or any other local refinery regarding the suspension of the naira-for-crude deal. However, the decision to halt the naira-based crude supply could have major economic implications.
One major concern is increased volatility in the foreign exchange (FX) market, as refineries will now have to purchase crude in dollars from international suppliers. This shift could put additional pressure on the naira, leading to higher costs for imported goods and further inflation.
Additionally, the move may disrupt the supply chain by creating uncertainty in fuel availability and pricing. With local refineries forced to procure crude at higher costs, inefficiencies could arise, potentially leading to delays in production and distribution. If not addressed, these challenges could impact businesses and consumers alike, driving up petrol prices and destabilizing the economy. Furthermore, petroleum marketers will now have to source supplies from international markets, increasing exposure to exchange rate fluctuations and global price volatility.
The Dangote Refinery is Africa’s largest and one of the world’s most advanced oil refineries. With a capacity of 650,000 barrels per day (bpd), it has the potential to significantly reduce Nigeria’s reliance on imported refined petroleum products while also supplying neighboring countries with much-needed fuel. Its large-scale production and strategic location position it as a key player in enhancing regional energy security and stabilizing fuel prices across West Africa.
