March 23, (THEWILL) – The suspension of Dangote Refinery’s fuel sales in naira has raised significant concerns within Nigeria’s energy sector, prompting questions about fuel price increases and economic pressure. This development stems from difficulties in obtaining crude oil under a local currency agreement with the Nigerian National Petroleum Company Limited (NNPCL), revealing weaknesses in Nigeria’s efforts to stabilise its fuel market and reduce dependence on foreign currency.
The breakdown of the naira-for-crude arrangement, initially viewed as a potential fix for Nigeria’s persistent foreign exchange shortages, means refineries must seek dollars to procure crude, which may drive up fuel costs and disrupt supply.
The naira-for-crude arrangement began in October 2024 on six-month trial to ease the strain on Nigeria’s foreign exchange reserves.
Under this plan, NNPCL committed to providing crude oil to local refineries, including Dangote Refinery, in exchange for fuel priced in naira. The goal was to lower the need for dollars in fuel production, keep fuel prices low and steady and bolster the domestic refining sector. However, the arrangement’s collapse has exposed serious shortcomings in its implementation and long-term viability.
A key factor in the failure was NNPCL’s inability to deliver crude oil consistently under the naira terms. Local refineries reported receiving far less crude than agreed. For example, Dangote Refinery, which needs 650,000 barrels per day to function at full capacity, faced significant shortfalls in supply. This gap forced the refinery to buy crude from international markets in dollars, defeating the purpose of the naira-based plan.
The unreliable crude supply resulted from multiple issues. NNPCL’s existing contracts with international partners often took priority, leaving little crude for local use. Additionally, Nigeria’s low oil production, worsened by theft and lack of investment, limited the crude available domestically. Average daily production for the month of February declined to1.46m barrels per day from 1.53m recorded in January 2025.
The economic consequences of Dangote Refinery halting fuel sales in naira are immediate and widespread. With local refineries now purchasing crude in dollars, fuel production costs are likely to rise. This increase will probably lead to higher prices at fuel stations for consumers.
Nigeria has already seen fuel costs climb sharply since the government ended subsidies in 2023. The present situation could push prices even further, adding pressure to households and businesses. This will fuel inflationary increases beyond what is currently afflicting individuals and corporations.
Higher fuel prices will lift transport and manufacturing expenses, causing a general increase in the cost of goods and services. This development would burden an economy already facing high interest rates, security issues, and inadequate electricity supply.
The greater demand for dollars to buy crude will also further weaken the naira, which has lost significant value within the last ten years. Nigeria’s foreign reserves face ongoing stress from continued reliance on imported fuel and crude for local refining.
The government’s response to this situation has drawn mixed reactions, with questions about its dedication to supporting local refining. In a statement, the NNPCL addressed concerns that read in part: “To clarify, the contract for the sale of crude oil in Naira was structured as a six-month agreement, subject to availability, and expires at the end of March 2025. Discussions are currently ongoing towards emplacing a new contract. It finished with: “NNPC Limited remains committed to supplying crude oil for local refining based on mutually agreed terms and conditions.”
So far, these discussions have not yet produced firm outcomes, and the refinery has already turned to international markets, recently buying two million barrels of U.S. WTI Midland crude. The government’s approach, seen by some as reactive rather than proactive, has fuelled doubts about its ability to carry out effective energy policies over the long term.
I would like to note that there are powerful interests within and outside the NNPC that never wanted this crude for naira arrangement to succeed but would rather the NNPC continue to award lucrative contracts for the importation of refined petroleum products.
Energy experts have urged for more openness and better planning in managing Nigeria’s oil resources. The failure to prioritise local refining needs over export deals points to poor coordination between NNPCL and the wider energy sector. Without a clear and binding system for allocating crude, local refineries will continue to face difficulties, and Nigeria’s goal of exporting refined products will remain out of reach.
The lack of a steady crude supply undermines the potential of refineries like Dangote to transform the country’s energy landscape. All of these carry important implications for Nigeria’s energy security. Dangote Refinery, capable of processing 650,000 barrels per day, was expected to meet all of Nigeria’s fuel needs and generate surplus for export. However, its struggle to obtain enough crude locally has led to reliance on imported crude, casting doubt on its long-term success. Other local refineries will also suffer from this circumstance. These facilities, intended to cut Nigeria’s dependence on imported fuel, now face similar supply and cost challenges, which could delay their operations. This situation highlights the need for a stronger crude supply framework that puts domestic refining first.
The end of the arrangement also risks undoing recent progress in reducing fuel imports.
In 2024, Nigeria’s imports fell to their lowest in eight years, largely due to Dangote Refinery’s production. However, with the refinery now sourcing crude from abroad, the country may return to relying heavily on imported fuel, reversing gains toward energy self-sufficiency. This shift could increase foreign exchange spending and leave Nigeria vulnerable to global oil price fluctuations.
The end of the naira-for-crude plan raises serious questions about the future of Nigeria’s refinery sector. While Dangote Refinery represents a major investment in local capacity, its ongoing challenges reflect broader systemic problems. Without a dependable and affordable crude supply, local refineries cannot run at full strength, and the benefits of domestic refining—lower fuel prices and reduced foreign exchange strain—will not materialise. The government must act decisively to address these issues. Prioritising crude allocation to local refineries, even if it means renegotiating international contracts or boosting oil production, is a critical step. Increasing output would require tackling oil theft and attracting investment to the sector, both longstanding challenges.
Transparency and accountability in managing oil resources are equally vital. The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has faced calls to enforce rules requiring oil producers to supply local refineries, a demand Dangote Refinery made in mid-2024. Without such measures, supply shortages will persist, and Nigeria’s energy security will remain fragile.
President Bola Tinubu must take aggressive and decisive steps to ensure that the NNPC delivers crude to local refiners under the naira-for-crude arrangement and block the NUPRC from issuing fresh licenses to import refined petroleum products.
