The Naira-for-Crude initiative was introduced by the Nigerian government in October 2024 to bolster local refining by allowing domestic refineries to purchase crude oil in the local currency, the naira.
This policy aimed to alleviate pressure on foreign exchange reserves and enhance the availability of refined petroleum products within Nigeria. A primary beneficiary of this arrangement was the Dangote Petroleum Refinery, a 650,000 barrels-per-day facility developed by billionaire Aliko Dangote.
Under this six-month agreement, the Nigerian National Petroleum Company Limited (NNPCL) committed to supplying a minimum of 385,000 barrels of crude oil daily to the Dangote Refinery. However, reports indicate that the NNPCL struggled to meet this target, delivering significantly less than the agreed volume. Specifically, the refinery received only 48 million barrels since October 2024, falling short of its operational needs.
This shortfall compelled the Dangote Refinery to seek alternative crude supplies from international markets, including the United States, Brazil, and other African nations such as Libya and Angola. These imports, transacted in U.S. dollars, introduced additional costs and complexities, impacting the refinery’s operational efficiency and financial performance.
Now, here is the thing, In March 2025, the NNPCL announced the conclusion of the Naira-for-Crude arrangement, citing the expiration of the initial six-month term and the allocation of available crude to long-term international contracts extending until 2030. This decision necessitated that local refineries, including Dangote’s, procure crude oil at international market rates, predominantly in U.S. dollars.
This arrangement seems to have worked at least in tha later part of the agreement when Nigerians saw the slow but steady downturn of petroleum price. This suggested the huge benefits of this agreement to Nigeria and it economy,
At the period also price of commodities went down some per argue that I was government intervention through it agriculture policy that can be attributed to this but the price of petroleum products had it own added advantage to this as many of this good were transport.
The termination of the Naira-for-Crude deal and the subsequent reliance on dollar-denominated crude purchases have had a pronounced effect on petrol prices in Nigeria. The Dangote Refinery, facing increased procurement costs, adjusted its petrol pricing accordingly. For instance, in January 2025, the refinery increased petrol prices to N950 per litre for bulk purchases of 5 million litres or more, reflecting a 6.17% hike from previous rates.
Industry experts suggest that foreign exchange interventions could mitigate these price increases. The Crude Oil Refiners Association of Nigeria (CORAN) proposed pegging the exchange rate at N1,000 per U.S. dollar for crude transactions to potentially reduce petrol prices to below N600 per litre. This approach aims to stabilize the naira and manage the cost implications of sourcing crude internationally.
The shift to dollar-based crude procurement places additional strain on Nigeria’s foreign exchange reserves and may contribute to the depreciation of the naira. Furthermore, increased petrol prices can lead to higher transportation and production costs, potentially fueling inflation and affecting the broader economy.
The Naira-for-Crude initiative was a strategic effort which should be sustained to support local refining and reduce dependence on imported petroleum products.
The Federal Executive Council on Wednesday, after an initial delay, instructed the full implementation of the suspended Naira-for-Crude agreement with local refiners.
The meeting reinstated that the initiative with local refineries is not a temporary measure but a “key policy directive designed to support sustainable local refining.
However, challenges in its implementation and the subsequent policy shift may led to increased operational costs for refineries and higher petrol prices for consumers. Addressing these issues requires comprehensive strategies, including stabilizing the naira, ensuring consistent crude supply to local refineries, and exploring policy measures to support the domestic refining sector.