Since the outbreak of the war in Iran, petrol prices in Nigeria have risen several times. In this report, CHIMA NWOKOJI examines Nigeria’s oil sector through a structural analysis of production realities, domestic energy policy, and global market forces.

Nigeria’s oil economy is shaped by global politics, domestic structural challenges, and changing patterns of energy demand. As Africa’s largest crude oil producer and a major exporter within the Organisation of the Petroleum Exporting Countries (OPEC), Nigeria’s government revenue, currency stability, and industrial growth depend heavily on the oil sector.

However, its oil industry currently reflects a difficult contradiction. On one hand, rising global oil prices and geopolitical tensions could create an opportunity for higher revenue. On the other hand, falling production levels and long-standing structural problems threaten the country’s ability to fully benefit from these developments.

Recent figures highlight this situation. Nigeria’s crude oil production rose slightly from 1.422 million barrels per day in December 2025 to about 1.459 million barrels per day in January 2026. But the improvement was short-lived. In February 2026, production dropped again to about 1.314 million barrels per day, widening the gap between Nigeria’s output and its OPEC quota of 1.5 million barrels per day.

These changes show the structural weakness in Nigeria’s oil sector and its struggle to take advantage of favourable global oil market conditions.

Some analysts argue that the current global conflict involving the United States, Israel, and Iran is not the root cause of Nigeria’s problems. Instead, they say the war is only making existing issues worse. These problems include years of underinvestment in oil infrastructure and weak energy transmission systems.

At the same time, rising geopolitical tensions in the Middle East have pushed global oil prices upward by creating fears of supply disruptions. For Nigeria, which depends heavily on oil exports for government income, higher prices could bring major financial gains. Analysts estimate that Nigeria could earn more than ₦30 trillion in additional revenue if oil prices remain high for a sustained period.

However, economists warn that these benefits depend on factors that Nigeria cannot control. These include global supply chains, geopolitical conflicts, and the speed at which the world shifts toward cleaner energy sources.

Supply and demand in the global oil economy

To understand Nigeria’s oil situation, it is important to first consider a basic economic principle: the law of supply and demand.

In simple terms, prices change in order to balance how much producers want to sell and how much consumers want to buy.

The law of demand states that when prices rise, consumers usually buy less, and when prices fall, they buy more. The law of supply, on the other hand, states that higher prices encourage producers to increase production because they can make more profit.

The point where supply and demand meet determines the market price of a product such as crude oil.

However, oil markets are influenced by more than just supply and demand. Prices are also affected by geopolitical conflicts, production quotas, technological developments, and global economic conditions.

Another important factor is price elasticity, which measures how strongly supply or demand responds to changes in price. For essential sectors such as transportation and manufacturing, oil demand is usually less sensitive to price increases. This means that even when prices rise, consumption does not immediately fall.

This explains why conflicts in oil-producing regions often cause sharp increases in oil prices. When supply is threatened, demand remains steady, pushing prices higher.

Nigeria’s production challenge

Nigeria’s failure to consistently meet its OPEC production quota remains one of the biggest challenges facing its oil industry.

Despite efforts by regulators and oil companies to increase production, output has remained unstable due to oil theft, pipeline vandalism, operational disruptions, and poor infrastructure.

In 2025 alone, Nigeria failed to meet its OPEC production quota in nine months. Although production exceeded the quota briefly in January, June, and July, output soon dropped again.

The same trend has continued into 2026. February’s production of about 1.31 million barrels per day represents another significant shortfall.

This has serious consequences for the economy. Lower oil production means lower export earnings and less revenue for the government. Since Nigeria’s national budget relies heavily on oil income, production shortfalls can weaken public finances even when global oil prices are high.

Production challenges also affect the domestic energy sector. Local refineries depend on crude oil supply to produce petrol, diesel, and other refined products. But when production is limited, export obligations often take priority over local refining.

The refining paradox

One of the most striking contradictions in Nigeria’s oil sector is that the country has large crude oil reserves but still struggles with fuel supply.

For many years, Nigeria exported crude oil but imported most of its refined petroleum products because its state-owned refineries stopped functioning effectively.

The launch of the 650,000-barrel-per-day refinery operated by Dangote Petroleum Refinery was expected to change this situation. However, supply challenges have complicated the transition.

The refinery needs about 13 cargoes of crude oil every month to operate fully. But reports indicate that it receives only about five cargoes monthly from Nigerian National Petroleum Company Limited.

Because of this shortfall, the refinery has had to buy crude oil from the international markets at global prices. This reduces the cost advantage that domestic refining was expected to bring.

As a result, Nigeria faces a strange situation: the country exports crude oil while some refineries import crude to operate. This highlights the gap between upstream oil production and downstream refining needs.

Debate over domestic pricing

Another important issue in Nigeria’s oil sector is how crude oil should be priced when supplied to domestic refineries.

Professor Hassan Ebhozele Oaikhenan of the University of Benin believes that selling crude oil to local refineries at international prices does not make sense for an oil-producing country.

According to him, Nigeria’s economy has unique characteristics that must be considered when making energy policies. One major factor is the country’s heavy reliance on petrol-powered generators.

“Almost every business organisation in the country depends on petrol and diesel to operate,” he says. “We cannot ignore the realities of a generator-driven economy when discussing fuel pricing or subsidy policies.”

From this perspective, supplying crude oil to local refineries at discounted or naira-based prices could help lower energy costs and improve economic stability.

However, other economists disagree. Some argue that selling crude oil at international prices reflects the true value of the commodity and prevents hidden subsidies that can strain government finances.

They also warn against comparing Nigeria with oil-rich Gulf countries. Many of those economies have stable currencies that are pegged to the US dollar and have gradually reformed their subsidy systems over the years.

Managing inflation risks

Global oil price volatility also has important effects on inflation and economic stability.

In the past, sharp increases in oil prices have triggered major inflation crises around the world. This was especially evident during the energy shocks of the 1970s.

Dr. Chijioke Ekechukwu, Managing Director of Bristol Investments Limited, believes that Nigeria’s economic outlook depends largely on international developments.

“The reason economists often say ‘all things being equal’ when making projections is because many external factors are beyond the control of any country,” he explains.

He notes that the duration and intensity of global conflicts will play a major role in determining whether inflation rises again.

To reduce inflation risks, Ekechukwu suggests that Nigeria should focus on ensuring stable domestic fuel supply. This could involve supplying crude oil to local refineries at controlled prices while strengthening border security to prevent fuel smuggling.

Such measures could help stabilise fuel prices even when global oil prices rise.

Infrastructure and supply chain challenges

Infrastructure weaknesses remain another major obstacle to Nigeria’s energy development.

Professor Sheriffdeen Tella of Olabisi Onabanjo University points out that many refinery operators lack sufficient storage facilities, transportation systems, and safety infrastructure.

Without improvements in these areas, expanding domestic refining capacity could be difficult.

Tella also stresses the need to increase crude oil production to support both exports and domestic refining.

If production does not rise significantly, Nigeria may face competition between exporting crude oil and supplying local refineries.

Reform Options for the Oil Sector

Experts have suggested several reforms to improve Nigeria’s petroleum sector.

Energy analyst Nick Agule recommends a phased approach involving short-term, medium-term, and long-term reforms.

In the short term, he proposes a targeted fuel subsidy that goes directly to consumers based on the amount of fuel they purchase. This could reduce corruption and ensure that subsidies benefit motorists rather than middlemen.

He also suggests expanding social support programmes funded by government revenues.

In the medium term, reforms should focus on improving security, repairing refineries, strengthening emergency services, and fixing Nigeria’s electricity sector. Reliable power supply would reduce the country’s heavy reliance on petrol generators.

In the long term, Agule calls for broader economic reforms. These include privatising the national oil company, expanding railway infrastructure, revitalising the steel industry, and developing hydroelectric resources.

While Nigeria struggles with domestic challenges, the global energy landscape is also changing.

Over the past forty years, many countries have reduced their dependence on oil through improved energy efficiency, renewable energy, and electric vehicles.

For example, the economy of the United States has grown more than three times since 1980, yet its oil consumption has remained relatively stable.

This suggests that oil price shocks may have a smaller effect on the global economy than they did in the past.

However, oil remains essential for transportation, aviation, and petrochemical industries. Major economies such as China still rely heavily on imported crude oil.

This means oil will likely remain an important global energy source for many years, even as cleaner energy becomes more widespread.

Nigeria at a Strategic Crossroads

Nigeria therefore faces a critical moment in its energy future.

High global oil prices and growing demand from emerging economies create an opportunity for increased revenue. But declining production, weak infrastructure, and policy uncertainty threaten to limit these gains.

If Nigeria continues to produce below its OPEC quota, the country could lose billions of dollars in potential revenue. On the other hand, improved investment in infrastructure, stronger security, and better regulation could help Nigeria fully benefit from its oil resources.

Domestic refining also presents a major opportunity. If Nigeria can supply enough crude oil to its refineries and implement stable pricing policies, it could reduce fuel imports, improve its trade balance, and strengthen energy security.

However, achieving these goals will require clear policies, transparent governance, and long-term planning.

Conclusion

Nigeria’s oil sector reflects the complex relationship between global market forces and domestic economic realities.

Rising geopolitical tensions and tighter global supply could push oil prices higher and increase government revenues. But Nigeria can only benefit fully if it improves production, strengthens infrastructure, and implements effective energy policies.

Ultimately, Nigeria’s oil future will depend not only on global demand and supply but also on the decisions made at home. If the right reforms are implemented, the country can transform its oil wealth from an unstable source of income into a foundation for long-term economic growth and stability.

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