Oil marketers, represented by the Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN), have expressed serious concerns about the potential risks associated with Nigeria’s naira-for-crude oil policy. The policy, which has raised questions about the stability of Nigeria’s foreign exchange (FX) system, was first reported on March 10, 2024, with claims that the Nigerian National Petroleum Company (NNPC) Limited had suspended the deal until 2030, due to the company having forward-sold all its crude oil.
In a subsequent clarification, NNPC acknowledged that negotiations are ongoing for a new naira-for-crude agreement with Dangote Petroleum Refinery, as the current contract is set to expire at the end of March. However, on March 19, Dangote Refinery temporarily suspended the sale of petroleum products in naira, further intensifying concerns.
In response, Olufemi Adewole, the executive secretary of DAPPMAN, issued a statement on Monday highlighting the potential risks the policy poses to Nigeria’s role in the global oil market. Adewole warned that the naira-for-crude policy could destabilize the foreign exchange market and potentially discourage foreign direct investment (FDI).
The global oil market has traditionally operated in U.S. dollars, a currency widely accepted and valued for its stability. Adewole emphasized that any shift away from the dollar could make Nigeria less attractive to global investors, potentially isolating the country from international markets.
“The global oil market depends on the U.S. dollar’s stability,” Adewole explained. “Shifting from this norm could alienate our trade partners and investors, which could further hinder Nigeria’s competitiveness in the global oil sector.”
Adewole further cautioned that the naira’s historical volatility makes it an unreliable base for major oil transactions. He warned that tying crude oil deals to the naira could exacerbate inflation and create more instability in the country’s foreign exchange rate. He also suggested that the policy could strain Nigeria’s foreign exchange reserves, particularly given the importance of oil exports to the country’s economic stability.
“Tying oil transactions to the naira could place significant pressure on Nigeria’s foreign exchange reserves, leaving the Central Bank of Nigeria (CBN) struggling to stabilize the naira,” Adewole stated. “Oil sales are a major source of foreign exchange for the country, and this policy could drain those reserves.”
The DAPPMAN executive secretary also drew a parallel with Venezuela’s failed attempt in the 2000s to replace the dollar with its local currency for oil trade, which led to severe economic turmoil. Adewole cautioned that Nigeria must learn from Venezuela’s experience and ensure that any shift in policy is well-planned and comes with necessary safeguards.
“Disrupting international trade norms can have unintended consequences,” he said. “Policies should be carefully crafted to maximize benefits for all Nigerians, rather than creating instability.”
While DAPPMAN remains committed to supporting the government’s efforts to strengthen the naira, Adewole emphasized that the root causes of the currency’s weakness must be addressed through long-term, sustainable reforms. He stressed the importance of aligning with global market practices to ensure Nigeria’s continued competitiveness in the oil sector.
“Oil sector reforms must focus on creating an investment-friendly environment that safeguards foreign exchange reserves, fosters competitiveness, and builds a sustainable energy future for Nigeria,” he concluded.
Despite these concerns, DAPPMAN reaffirmed its commitment to working with regulators and other stakeholders to improve the downstream oil sector in Nigeria.
