The ongoing fuel crisis in Nigeria, which has caused severe disruptions since July 2024, is the latest manifestation of a long-standing structural problem in the country’s energy sector. With millions of man-hours lost to endless queues at petrol stations, the inefficiencies of the current system have become glaringly obvious. For nearly three decades, Nigeria’s fuel supply has been dependent on the importation of petroleum products, sustained by a government-subsidised pricing system. As oil production has fallen from over two million barrels per day to just over one million, the cost of maintaining these subsidies has become unsustainable.
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President Bola Tinubu’s decision on May 29, 2024, to remove fuel subsidies was a step in the right direction, but the simultaneous flotation of the naira introduced new complications. Between May 2023 and September 2024, the currency lost about 245 percent of its value. While crude oil prices remained stable, the cost of importing fuel skyrocketed, effectively reintroducing the very subsidies the government sought to eliminate. This has left the Nigerian National Petroleum Corporation (NNPC) in the difficult position of continuing to absorb costs while publicly denying the return of subsidies. This is both a failure of communication and a reflection of the broader economic challenges facing the country.
As the landing cost of petrol has surged to around N1200 per litre, the current pump prices of N855 to N897 per litre reflect a significant subsidy—around 50 percent—that cannot be sustained in the long term. With 65 percent of federal revenue allocated to debt servicing in 2023 and a growing budget deficit in 2024, the government is in no position to bear this financial burden. While the removal of the subsidy was necessary, its execution has been problematic. Nigerians deserve transparency from their leaders. Rather than downplaying the severity of the situation, the government and the NNPC should have laid out the full financial picture, preparing the public for an inevitable increase in fuel prices.
“Rather than downplaying the severity of the situation, the government and the NNPC should have laid out the full financial picture, preparing the public for an inevitable increase in fuel prices.”
The complexity of Nigeria’s fuel subsidy problem cannot be overstated. The combination of a depreciating naira, declining oil production, and the opaque operations of NNPC has led to a perfect storm. The state oil company’s claim of owing fuel traders $6.8 billion may be legitimate, but without more transparency, it is difficult to assess the full scope of the problem. Compounding these issues is the recent commissioning of the Dangote Refinery, which has the potential to reduce Nigeria’s reliance on fuel imports. However, whether local refineries can produce gasoline at prices that align with current pump rates remains to be seen.
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What is clear is that the era of cheap fuel in Nigeria is over. The expectation that local refining will bring immediate relief to consumers may be overly optimistic. The savings in foreign exchange from reduced imports could lead to a moderate appreciation of the naira, but this will not happen overnight. Instead, the long-term benefit of local refining lies in enhancing fuel security, not in maintaining artificially low prices. Nigerians must brace themselves for higher costs as the country transitions toward a more sustainable fuel supply model.
Despite the immediate pain caused by rising fuel prices, the removal of the subsidy is a necessary step in stabilising Nigeria’s economy. However, the government must now focus on building public trust by communicating clearly and transparently about the next steps. Without this, the policy risks further alienating an already frustrated population. Nigeria’s long-term prosperity depends on its ability to move away from dependence on fuel imports and subsidies. Achieving this will require tough decisions, fiscal discipline, and sustained investment in domestic energy infrastructure.
While the immediate fuel queues may be subsiding, the underlying challenges facing Nigeria’s energy sector remain. The government must now seize this opportunity to implement comprehensive reforms that will ensure the long-term sustainability of the sector. This requires not only managing the fallout from the subsidy removal but also fostering an environment that encourages investment in local refining and renewable energy sources.
By promoting a more diversified energy mix, Nigeria can reduce its reliance on imported fossil fuels, enhance energy security, and mitigate the risks associated with climate change. Additionally, the government should prioritize the development of infrastructure, such as pipelines and storage facilities, to improve the efficiency of fuel distribution and reduce losses.
Read also: The challenges of managing Nigeria’s fuel subsidy conundrum
Ultimately, Nigeria’s success in navigating this crisis will depend on its ability to emerge stronger and more resilient. By implementing bold reforms and investing in sustainable energy solutions, the country can position itself for a brighter future, one that is less dependent on volatile global oil markets and more resilient to economic shocks.
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