The federal government’s signature naira-for-crude arrangement is showing signs of strain as Dangote Petroleum Refinery has stopped selling petrol, diesel and jet fuel for naira, moving all product sales to dollars in a pricing decision that threatens to push pump prices higher across Africa’s biggest oil-producing country.
The 650,000-barrel-a-day refinery has moved all sales of Premium Motor Spirit, Automotive Gas Oil and Aviation Turbine Kerosene onto a dollar-denominated basis, according to a senior industry source with direct knowledge of the refinery’s operations.
The change applies immediately to both gantry lifting and coastal cargo sales, the person said, asking not to be identified because the matter isn’t public.
The development effectively weakens, in practice if not in name, the naira-for-crude arrangement brokered by President Bola Tinubu’s government in 2024, under which the Nigerian National Petroleum Company (NNPC) agreed to sell crude oil to Dangote in naira in exchange for the refinery supplying the domestic market with fuel priced in the local currency.
The deal was pitched as a way to insulate Nigerian motorists from the naira’s slide and cut the country’s dollar demand for fuel imports.
That arrangement has been fraying for months, and the currency switch is the clearest sign yet that it has broken down.
Crude cargoes turn dollar-heavy
According to the source, the balance of crude supplied to Dangote by NNPC has shifted decisively toward dollar-denominated cargoes, even as the refinery continued selling a large share of its refined products in naira.
That mismatch, dollar-priced inputs against naira-priced outputs, left the refinery increasingly exposed every time the naira weakened against the dollar.
‘The decision takes effect immediately. All PMS, AGO and ATK sales, both gantry and coastal, are now dollar-based,’ the source said.
‘Dangote Refinery is receiving fewer naira-denominated crude cargoes from NNPC compared with dollar-denominated cargoes, while a larger volume of its petroleum products has been sold in naira. The resulting currency mismatch, combined with market instability, made it necessary to migrate product sales to dollars,’ the person added.
Volatile international crude prices compounded the pressure, the source said, giving refinery management further reason to align its sales currency with the currency in which it now buys most of its feedstock.
Neither Dangote Industries Ltd. nor NNPC immediately responded to requests for comment.
Global oil prices rose above $78 per barrel on Monday after Iran warned that normal shipping through the Strait of Hormuz would not resume unless the United States ends its military presence in the strategic waterway, raising fresh concerns over energy supplies and maritime security in the Gulf.
International benchmark Brent crude climbed above $82 per barrel during afternoon trading on Monday, gaining more than 8 percent, while US benchmark West Texas Intermediate (WTI) surged past $77 per barrel as traders priced in the possibility of prolonged disruptions to one of the world’s most important oil transit routes.
Naira-for-Crude deal under strain
The naira-for-crude framework was always a delicate balancing act, requiring NNPC to consistently prioritise naira-denominated crude allocations to Dangote even as the state oil company juggles its own dollar obligations, joint-venture commitments and revenue-sharing arrangements with the federation.
Any slippage in that flow, intentional or otherwise, pushes the refinery back toward the international market for crude, where cargoes are priced and settled in dollars.
That appears to be exactly what has happened. With a growing share of its crude now dollar-denominated while its product sales remained pegged to naira, Dangote was absorbing currency risk on both ends of the transaction, paying dollars upstream while collecting a depreciating currency downstream. For a company of Dangote’s scale, sustaining that gap indefinitely was never realistic.
The switch effectively passes that currency risk on to marketers, depots and ultimately Nigerian consumers.
Marketers to reprice
Depot owners and fuel marketers across major supply hubs are expected to start revising pump and ex-depot prices upward in response to the new dollar-based regime, industry participants said, marking the first visible ripple from the policy shift.
Marketers who typically hold naira working capital will now need to source dollars, either from the parallel market or through bank channels, to lift products from Dangote’s gantries, adding a layer of cost and logistical friction that is likely to be passed straight through to retail prices.
Analysts expect the adjustment to filter through to filling stations within days, reversing at least part of the price relief that followed the naira-for-crude deal’s rollout last year.
‘We were not prepared for this. Most of us budget and pay in naira, so a sudden dollar requirement means we either shut down lifting for a few days while we source forex, or we buy dollars at a premium and pass the cost on,’ said an independent fuel marketer who operates depots in Lagos and Ogun states, speaking on condition of anonymity because he was not authorised to discuss the matter publicly.
A Lagos-based downstream analyst said the switch was foreseeable given how the naira-for-crude arrangement was structured. ‘This was always going to be the outcome the moment NNPC’s naira crude allocations to Dangote started shrinking. You cannot pay dollars for your major input and expect to keep selling the output in naira indefinitely. The refinery absorbed the mismatch for as long as it could,’ the analyst said.
Officials at the Independent Petroleum Marketers Association of Nigeria did not respond to requests for comment on how the association plans to advise members on sourcing dollars for product lifting.
Added strain on the naira
The shift also has implications well beyond the fuel market. If marketers and depot owners must now compete for dollars to buy petroleum products domestically, on top of existing demand for imports, and debt servicing, that adds fresh pressure to an already fragile foreign-exchange market.
The Central Bank of Nigeria has spent much of the past two years trying to stabilise the naira through unification of exchange-rate windows and periodic dollar interventions.
A jump in domestic dollar demand tied to fuel purchases threatens to complicate that effort, potentially reigniting the kind of parallel-market pressure the naira-for-crude deal was partly designed to relieve in the first place.
The Nigerian Midstream and Downstream Petroleum Regulatory Authority has not commented on whether it will intervene, and it remains unclear whether the federal government will attempt to renegotiate crude supply terms with NNPC to restore more naira-denominated allocations to Dangote, a step that could, in theory, reverse the switch.