Nigeria Must Not Rebuild the Fuel Subsidy Trap
Falil Ayo Abina
Nigeria and indeed the world are experiencing a painful energy shock. The Middle East conflict and continuing disruption around the Strait of Hormuz have pushed global oil and refined-product prices sharply higher. Brent crude recently crossed $100 a barrel again as markets priced in continuing geopolitical and supply risks.
Nigerians therefore have every right to demand relief. What they do not need is the dangerous fiction that the answer is to resurrect the fuel-subsidy regime that Nigeria spent decades trying, and ultimately failing, to sustain. The old subsidy was not cheap petrol. It was expensive petrol paid for by the government, giving most people suboptimal value, instead of quantifiable, real development that benefits all.
For years, Nigeria sold petrol below its economic cost while the government absorbed the difference. The system became opaque, fiscally ruinous, and an extraordinary incentive for arbitrage and smuggling. The entire West African coast and Cameroon were feeding fat from the proceeds that should be accruable to the Nigerian people. By 2022, the World Bank estimated that the subsidy consumed 32.4% of federal revenues and about 2.2% of GDP. NNPCL had accumulated roughly ₦2.8 trillion in subsidy-related arrears, while the poor, according to the World Bank, captured only about 3% of subsidised PMS consumption.
There was a deeper contradiction. An oil-producing country was simultaneously exporting crude and spending scarce foreign exchange importing refined petrol. The subsidy distorted the price signal, discouraged investment in domestic refining, and created a powerful rent-seeking ecosystem around importation, allocation, and foreign exchange access. Scarcity was not bad luck. It was partly a symptom of the architecture.
When government could not adequately finance the subsidy, or importers could not obtain sufficient foreign exchange, queues appeared. Supply became uncertain. Black markets flourished. The nation effectively paid twice: once through public finances and again through lost productivity, smuggling, corruption, and wasted foreign exchange.
The Tinubu administration’s decision to remove the subsidy in May 2023 was consequently more than a price adjustment. It was a structural reform designed to break this cycle.
The results should be judged against the counterfactual: what would Nigeria look like today if the subsidy had remained?
The answer is uncomfortable for its critics. Nigeria would still be exposed to international crude and refined-product prices. Still, the government would have to absorb an enormous additional fiscal bill every time those prices rose. The World Bank projected that subsidy removal, combined with FX reform, could generate more than ₦21 trillion in fiscal gains over 2023–25 relative to retaining the subsidy.
By the Federal Government’s accounting, ₦15.8 trillion in resources was freed between June 2023 and December 2025; ₦10.4 trillion was shared among states and local governments through the Federation Account, while ₦5.4 trillion went to the Federal Government.
This matters because fiscal reform is not an abstraction. It determines whether states can pay salaries, invest in roads and water, support transport systems and fund basic services. This, we note, has been the case in the last 3 years compared to the previous decade.
More importantly, Nigeria’s macroeconomic position has begun to look materially different. The IMF says that the reforms since 2023, including ending fuel subsidies, liberalising the exchange rate and stopping deficit monetisation, have reduced fiscal vulnerabilities, rebuilt external buffers and improved FX-market functioning. International reserves rose to $46 billion at the end of 2025 from $40 billion a year earlier and now at $ 55 billion by the end of September 2026, an eighteen-year high.
The downstream petroleum market is also being transformed. Domestic refining capacity has expanded, most visibly through the Dangote refinery, while the market has moved away from the old model in which subsidised imported petrol dominated supply.
That is the beginning of energy sovereignty: Nigeria should increasingly refine its own crude, consume more domestic gas, compete on price and eventually export refined products not subsidise imports. Effectively today, the country is a net exporter of petroleum products.
The current geopolitical crisis makes this transformation even more important.
The populist proposition that Nigeria should now bring back a universal petrol subsidy because prices are painful confuses a global price shock with a domestic policy failure. The world is not facing a Nigerian fuel problem. It is confronting a geopolitical energy shock. Governments elsewhere are responding with strategic reserves, temporary support, conservation, and targeted measures, not by pretending that the underlying commodity has suddenly become cheaper.
A subsidy would not make crude cheaper. It would not reopen the Strait of Hormuz. It would not lower freight rates or eliminate geopolitical risk. It would simply move part of today’s higher price from the filling station to the government’s balance sheet and cripple public finance.
And because Nigeria’s subsidy would be universal, the richest households with larger cars and greater fuel consumption and smugglers to the west coast would receive more of the benefit than the poorest who need relief. That is precisely why an indiscriminate subsidy is such a poor social protection strategy.
The rigmarole on the policy reversal also had a flip that included subsidizing the cost of supplying crude to local refiners instead. This is not well thought out and does not deal with the distortions, corruption, and smuggling. This is aside from the fact that the basic economic principle of opportunity cost is ignored because the nation operates on a quota, as do all OPEC members. It is at best a populist idea that would hurt not just the masses but would disrupt the nation’s finances.
But rejecting subsidy restoration does not mean asking Nigerians to suffer silently with this surging worldwide energy cost. NO
The reform needs a stronger social contract. AACS in our April 2023 economic agenda ( shorturl.at/z7egJ) advocated for more attention to the vulnerable population, and more can be done in this regard, especially when unplanned scenarios like the Middle East conflict spring up.
The government should accelerate CNG conversion, expand affordable mass transit, support state-led transport interventions, improve rail and water transportation, and deploy more targeted assistance to the households and businesses most exposed to the shock. The CNG programme is directionally correct, but it needs scale, speed and measurable reductions in transport costs.
States, which are now receiving substantially greater Federation resources, must also be held accountable. A portion of the fiscal dividend should translate into cheaper public transportation, better roads and productivity-enhancing infrastructure rather than simply larger recurrent expenditure.
The government must improve transparency around subsidy savings. The IMF itself notes that challenges remain in tracking whether the full savings are accruing to the budget. The leadership of the finance ministry is trusted enough to ensure this.
That is not an argument for reversing reform. It is an argument for completing it properly.
Nigeria has already demonstrated that reform can be politically expensive while economically necessary. The mistake now would be to interpret today’s hardship as proof that yesterday’s distortion was sustainable.
The choice is not between cheap petrol and expensive petrol. It is between a transparent market with targeted protection for vulnerable Nigerians and an opaque subsidy system that once consumed public resources, encouraged smuggling, distorted investment and weakened the currency.
Nigeria should cushion the shock. It should protect the vulnerable. It should demand efficiency from the government and accountability from the states.
But it must not go backwards.
Compassion and more deliberate people policy should be the response to the crisis, not a return to the corruption-prone economics that helped create Nigeria’s previous fuel crisis.
Falil Ayo Abina is the Chair of AACS ( Consulting & Principal Investment) and a member of the Presidential Fiscal Policy & Tax Reform Committee
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