The Nigerian National Petroleum Company (NNPC) Limited has officially suspended its naira-for-crude oil swap agreement with domestic refineries, including the highly anticipated Dangote Refinery and other private operators. This decision, which took immediate effect, is stirring conversations about its potential impact on Nigeria’s energy sector and the wider economy.
The naira-for-crude initiative, launched on October 1, 2024, allowed local refineries to purchase crude oil in naira instead of US dollars. This arrangement was designed to bolster domestic refining capacity, reduce reliance on imported petroleum products, and ease pressure on the country’s foreign exchange reserves by supporting the local currency.
With the suspension of the agreement, Nigerian refineries—most notably the Dangote Refinery—will now need to source crude oil from international suppliers, paying in dollars rather than naira. This shift is expected to significantly increase operational costs, potentially leading to higher fuel prices for consumers.
Sources familiar with the situation say the NNPC informed local refiners that it had already committed its crude oil production to forward contracts, leaving no supply available for domestic refineries. This announcement comes despite reports indicating that Nigeria’s crude output has increased since the inception of the swap deal.
Industry stakeholders, particularly those involved with the Dangote Refinery, have expressed concerns over the suspension’s timing. The Dangote Refinery, owned by billionaire Aliko Dangote, has been a key beneficiary of the naira-for-crude arrangement, which allowed it to secure locally sourced crude at more favorable terms. Analysts warn that the suspension could delay the refinery’s operational launch and lead to higher costs.
Other private refineries, such as Waltersmith Petroman and BUA Refinery, are also expected to feel the effects of the suspension. The naira-for-crude deal had provided these facilities with a more cost-effective means of securing crude oil, helping them remain competitive against international players in the refining industry.
Economists are concerned that this move may exacerbate existing challenges facing Nigeria’s economy. With the naira already under significant pressure, the removal of the dollar-saving mechanism could increase currency volatility and contribute to further economic instability.
Additionally, the suspension could slow the government’s efforts to achieve self-sufficiency in petroleum production—one of its primary goals in the energy sector.
