Nigeria is bracing for a fresh surge in fuel prices following Dangote Petroleum Refinery’s decision to halt the sale of petroleum products in Naira, a move that industry experts say could compound the country’s economic hardship and intensify pressure on foreign exchange.

In a statement released on Wednesday, Dangote Petroleum Refinery, Africa’s largest refinery, explained that the temporary halt in Naira transactions was necessitated by a misalignment between its revenue streams and crude oil procurement obligations, which are settled in US dollars.

“This decision is necessary to avoid a mismatch between our sales proceeds and our crude oil purchase obligations, which are currently denominated in US dollars,” the company stated.

According to the $20 billion refinery based in Lagos, the volume of petroleum products it has sold in Naira now surpasses the amount of Naira-denominated crude oil it has received from the Nigerian National Petroleum Company Limited (NNPCL). The company maintains that once it secures new crude oil supplies in Naira, it will promptly resume local currency sales.

The move follows the expiration of the crude-for-Naira agreement between Dangote Refinery and the NNPCL on March 1, 2025. The government introduced the arrangement in mid-2024 as a measure to ease pressure on the US dollar and ensure price stability in the downstream oil sector. Under the six-month agreement, Dangote Refinery and other local refineries received crude oil from NNPCL in Naira rather than US dollars.

However, with the expiry of the arrangement, Dangote Refinery is now forced to procure crude in foreign currency, which in turn affects the currency in which it sells its refined products.

The NNPCL, in its defense, said that negotiations were ongoing to replace the expired contract and pointed out that since the start of the arrangement, it had supplied Dangote Refinery with over 48 million barrels of crude oil in Naira and a total of 84 million barrels since the refinery began operations in 2023.

Analysts Decry Policy Reversal

The decision to end the Naira crude sales arrangement has sparked concerns, with financial and energy analysts arguing that sustaining the policy would have shielded Nigeria from currency fluctuations and rising fuel costs.

Financial analyst Kalu Aja described the crude-for-Naira arrangement as a subsidy that protected consumers when oil prices were falling. However, he questioned what would happen if global crude oil prices surged, suggesting that the policy shift could have severe consequences for Nigeria’s economy.

Energy analyst Kelvin Emmanuel attributed Dangote’s decision to two key factors:

1. Market Manipulation by Competitors – According to Emmanuel, a cartel of oil marketers who feel threatened by Dangote Refinery’s lower pricing strategy may have lobbied to terminate the Naira-based crude swap. This, he said, was a move to force Dangote to increase prices, thereby leveling the playing field for importers.
2. Government’s Desperation for Foreign Exchange – Emmanuel also suggested that discussions were underway for a new forward-sale agreement that would extend until 2034 and be 2.2 times larger than the 2023 arrangement. This, he said, was driven by the Central Bank of Nigeria’s urgent need to settle $3.2 billion in foreign exchange obligations, including $1.2 billion in Eurobond yields due in 2025.

Oil Marketers Warn of Price Hikes

Oil marketers have warned that the shift in Dangote’s sales policy could lead to a sharp increase in fuel prices in the coming days.

Public Relations Officer of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Chief Chinedu Ukadike, noted that the shift would worsen the pressure on the dollar, which has now become the primary exchange currency for petroleum products.

“The pressure on the dollar will increase because it has become the means of exchange. Marketers will begin to sell petrol at filling stations in dollars. And this will have a negative impact on the prices of petroleum products across the country,” Ukadike stated.

He further revealed that marketers had been informed that the crude-for-Naira deal officially ended on March 1, contradicting claims by some government officials that it was still in place.

With this development, pump prices, which had temporarily dropped below N1,000 per liter, are expected to climb again. Though the Major Energy Marketers Association of Nigeria (MEMAN) recently reported a slight reduction in the landing cost of imported petrol—from N817.82 per liter on March 14 to N797.66 per liter—analysts warn that without local crude supply from Dangote Refinery, the downward trend will be short-lived.

Rising Fuel Costs and Economic Strain

Nigeria’s energy sector remains in crisis, sustained by the longstanding inefficiency of state-owned refineries, which have been non-operational for decades until 2024. Despite efforts to revive the sector, the country still heavily relies on imported refined petroleum products, with NNPCL serving as the major importer.

The removal of fuel subsidies in May 2023 by President Bola Tinubu further worsened the situation, causing petrol prices to skyrocket from around N200 per liter to as high as N1,000 per liter. This has deepened economic hardship for millions of Nigerians who depend on petrol not just for transportation but also for powering generators in the absence of a stable electricity supply.

Last December, Dangote Refinery commenced operations with an initial refining capacity of 350,000 barrels per day, with plans to reach its full 650,000 barrels per day capacity by the end of 2025. While the refinery has already begun supplying diesel, aviation fuel, and now petrol to the domestic market, its pricing strategy and its ongoing negotiations with the government remain critical in determining the future of fuel affordability in Nigeria.

However, halting the naira-for-crude deal means that Nigeria is returning to full dollarization of the petroleum sector, a situation that will bring further strain on the economy by potentially worsening inflationary pleasures.