NNPC Suspension of Naira-for-Crude Oil Deal with Dangote, Others, Spells Price Hike

• NNPC terminates naira-to-crude oil agreement with domestic refineries, turns to payment in dollars.

• Analysts and Economic watcher says it could lead to increase in fuel price and Naira volatility.

The recent move by the Nigerian National Petroleum Company (NNPC) Limited to suspend the naira-for-crude oil deal with refineries like the Dangote refinery, BUA refinery and other domestic refineries has sparked nationwide controversy.

Most analysts have warned that the suspension could trigger high importation and high fuel costs.

The naira-for-crude arrangement, introduced on October 1, 2024, allowed local refiners to purchase crude oil in naira instead of dollars.

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The aim was to support domestic refining, reduce reliance on imported petroleum products, and stabilize the local currency by easing pressure on foreign exchange reserves.

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The suspension of the agreement means that Nigerian local refineries, including  Dangote facility, will have to source crude oil from international suppliers. They will also pay in dollars instead of in naira.

The shift has been speculated to escalate operational costs, potentially leading to an increase in fuel prices at the pump.

According to a source making waves online about the development, the NNPC has informed local refiners that it has already committed its crude oil production to forward contracts, leaving no supply available for domestic refineries.

This revelation came amid reports that Nigeria’s crude output has increased since the deal first began.

The impact of this announcement by NNPC will affect all domestic refineries especially Dangote refinery, which is at the forefront of becoming one of Africa’s largest refining facilities.

Recall that Dangote refinery owned by billionaire Aliko Dangote, has been a key beneficiary of the naira-for-crude deal.

It heavily relies on local crude oil to meet its refining needs and this new development might trigger an increase in fuel prices.

Dangote refinery isn’t the only one affected, other private refiners like Waltersmith Petroman and BUA Refinery, might also be at the receiving end of the new NNPC decision.

Economic analysts have also speculated that the suspension might have ripple effects on Nigeria’s economy.

They argued that Naira has in the past faced significant pressure, therefore the removal of this dollar-saving mechanism could heighten the currency’s volatility.