The Dollarisation of Petrol

The era of naira-priced petrol may be ending, as the federal government’s policy on naira for crude oil flops. What follows could reshape inflation, transport costs and the value of the naira, writes Festus Akanbi

The decision by Dangote Petroleum Refinery to abandon naira-denominated sales of petroleum products is arguably the biggest policy setback for Nigeria’s downstream oil sector since the removal of fuel subsidy. It is not merely a commercial decision by a private refinery; it is a vote of no confidence in the federal government’s ability to sustain the much-publicised naira-for-crude initiative. 

More importantly, it underscores a painful reality: despite Nigeria’s emergence as Africa’s largest refining hub, domestic fuel prices remain hostage to the foreign exchange market.

Effective July 13, 2026, the refinery fixed the ex-depot price of Premium Motor Spirit (PMS) at $0.779 per litre, diesel at $1.087 and aviation fuel at $0.942, while cancelling all previously issued naira-denominated invoices. The decision followed the refinery’s increasing reliance on crude oil purchased in dollars after supplies under the government’s naira-for-crude arrangement became inadequate.

The timing could hardly have been worse. Dangote Refinery, a $20 billion investment and the world’s largest single-train refinery, has a refining capacity of 650,000 barrels of crude oil per day, sufficient to meet Nigeria’s domestic fuel demand and export surplus products across Africa. 

Yet, industry reports indicate that the refinery received only seven domestic crude cargoes in May, against a monthly requirement of 13-15 cargoes, compelling it to import a substantial portion of its crude feedstock in dollars. This inevitably exposed the refinery to exchange-rate risks that no private investor could absorb indefinitely.

At the prevailing official exchange rate of about N1,380 per US dollar, the refinery’s new dollar price translates to roughly N1,075 per liter before transportation costs, depot margins, regulatory charges, and marketers’ profits are added. While the immediate increase may appear modest, the real danger lies elsewhere: petrol prices are now directly tied to the fortunes of the naira.

Should the exchange rate weaken to N1,500/$, the same litre of petrol would cost about N1,169 before additional charges. At N1,600/$, the cost rises to approximately N1,246. 

In effect, Nigerians may now pay more for fuel without any increase in global crude prices or refining costs. Exchange-rate depreciation alone becomes sufficient to raise domestic pump prices.

Ironically, this is precisely what the naira-for-crude initiative was designed to prevent. Introduced in 2024, the policy sought to supply local refiners with crude oil in naira to reduce dollar demand, strengthen local refining, ease pressure on foreign reserves, and stabilise fuel prices. That objective has now been substantially undermined by inconsistent implementation.

Professor Emeritus of Petroleum Economics, Wumi Iledare, rightly argues that Dangote Refinery has merely announced the price at which it is prepared to sell its products in a deregulated market.

According to him, aligning revenues with the currency in which crude is procured is a legitimate commercial response to foreign exchange exposure rather than price-fixing. His position reflects established principles of petroleum economics.

However, commercial logic does not erase economic consequences. Nigeria’s downstream petroleum market remains far from perfectly competitive. The country’s state-owned refineries have yet to operate at optimal capacity, imported products remain expensive, and Dangote Refinery has become the dominant domestic supplier. Consequently, a commercial decision made by a single refinery can quickly become a national economic issue.

Industry stakeholders have already sounded the alarm. The Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN) warned that dollar-denominated fuel transactions could gradually encourage the dollarisation of the Nigerian economy. 

At the same time, the Independent Petroleum Marketers Association of Nigeria (IPMAN) argued that marketers would now compete for scarce foreign exchange, placing fresh pressure on the naira and increasing pump price volatility. Depot operators have reportedly already raised loading prices by up to N113 per litre at some locations in anticipation of higher replacement costs.

The wider economy is unlikely to escape the consequences. According to the National Bureau of Statistics, Nigeria’s headline inflation stood at 15.93 per cent in May 2026, while food inflation was 16.96 per cent. Fuel remains one of the country’s biggest drivers of inflation because road transport accounts for the overwhelming movement of goods and passengers. 

At the same time, thousands of manufacturers, hospitals, schools and small businesses still rely heavily on petrol and diesel generators due to an unreliable electricity supply. Any sustained increase in fuel prices inevitably feeds into transportation costs, food prices, industrial production and household living expenses.

The uncomfortable truth is that this development exposes a policy contradiction. The government promoted the naira-for-crude initiative as the cornerstone of its energy reforms, promising lower foreign exchange demand, greater energy security, and more stable fuel prices. 

Yet it failed to guarantee the one condition necessary for the policy’s success: an adequate supply of crude to domestic refiners in naira. Once crude procurement gradually reverted to dollars, Dangote’s decision became less a matter of choice than commercial necessity.

Ultimately, Dangote Refinery has done what every rational private investor would do—align its revenues with the currency in which most of its obligations are incurred. The real issue is not Dangote’s decision but the policy inconsistency that made it inevitable. 

Nigeria established the naira-for-crude initiative to shield consumers from exchange-rate volatility. Allowing that framework to unravel has effectively transferred foreign exchange risk from the refinery to motorists, manufacturers and millions of households. 

Unless the federal government urgently restores a transparent and enforceable domestic crude supply framework, Nigerians may discover that local refining alone is no guarantee of cheaper fuel. 

In today’s Nigeria, the price displayed at filling stations may increasingly depend less on refining costs in Lekki than on the value of the naira in the foreign exchange market.