Iran, the Strait of Hormuz, OPEC and the Dangote Refinery: understanding what is driving the price at the pump.
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Petrol price comparison. |
THE FUEL PRICE STORY STARTS BEYOND NIGERIA
When petrol prices rise, the first question many Nigerians ask is simple: why is fuel becoming more expensive when Nigeria is an oil-producing country?
The answer begins with understanding how the global petroleum market works. Crude oil is traded internationally. Its price is influenced by global supply and demand, geopolitical developments, shipping routes, refining capacity, currency movements and decisions made by major oil-producing countries.
Nigeria produces crude oil, yet the price of the crude used by refineries is influenced by the same international market that affects countries across Europe, Asia, Africa and the Americas. The conflict involving Iran has brought this reality into sharp focus.
THE STRAIT OF HORMUZ: WHY THE WORLD IS WATCHING
The Strait of Hormuz is one of the world's most important energy shipping routes. Before the current conflict, oil shipments through the strait represented approximately one-fifth of global oil and petroleum-product flows.
When attacks on shipping and disruption to the route threaten those supplies, buyers around the world compete for alternative sources. Shipping becomes more expensive, insurance premiums rise, deliveries become less predictable and the price of available oil can increase. The consequences extend beyond crude oil.
Petrol, diesel, aviation fuel, liquefied petroleum gas and other petroleum products can all face price pressure because they share the same interconnected energy market.
The US Energy Information Administration reported that Brent crude averaged $114 per barrel in September 2026, following attacks on Middle Eastern energy infrastructure and shipping. It also forecast an average of $105 per barrel for the fourth quarter, assuming constrained regional oil flows. This is the international backdrop against which Nigerian fuel prices must be understood.
OPEC: THE ORGANISATION THAT CAN MOVE THE MARKET
The Organisation of the Petroleum Exporting Countries, known as OPEC, brings together major oil-producing nations, including Nigeria.
Together with its partners in OPEC+, the organisation can influence global supply by agreeing on production targets. When output is restricted while demand remains strong, prices tend to rise. When additional supply reaches the market, upward pressure can ease.
OPEC does not set a single fixed price for every litre of petrol sold worldwide. Rather, its production decisions influence the balance between supply and demand, which helps shape international crude prices. OPEC and OPEC+ are not the only forces involved. Geopolitical risk, non-member producers, inventories, refinery capacity and consumer demand also matter.
For Nigeria, this means that producing crude oil does not automatically guarantee cheap petrol. The country participates in a global market whose prices are shaped by decisions and events far beyond its borders.
WHY NIGERIA'S DOWNSTREAM MARKET IS CHANGING
For decades, Nigeria relied heavily on imported refined petroleum products despite being a major crude-oil producer. That arrangement exposed the country to international product prices, shipping costs, foreign-exchange pressures and the cost of importing finished fuel.
The emergence of the Dangote Petroleum Refinery represents a major change in this structure. Domestic refining creates the opportunity to process crude oil closer to home, reduce dependence on imported finished products, shorten some supply chains and improve the availability of petrol, diesel and aviation fuel.
It also creates a domestic source of refined products that can compete with imports. Recent market data illustrate this change.
In September 2026, the reported Dangote gantry price for petrol was ₦1,350 per litre, compared with an estimated import-parity cost of approximately ₦1,364–₦1,365 per litre at the Apapa jetty. Importing petrol was therefore more expensive on that particular comparison.
This is the significance of domestic refining: it creates another source of supply and the possibility of greater competition, even while international prices remain volatile.
WHY FUEL SUBSIDY REMOVAL MATTERS
The removal of the petrol subsidy changed the economics of Nigeria's downstream petroleum market. Under the former system, government intervention kept the pump price below the full market cost, with the public purse bearing the difference. The system also contributed to substantial fiscal pressures and created incentives for cross-border smuggling.
The transition towards market-based pricing changed the commercial environment in which refiners, importers and fuel marketers operate.
For a large private refinery such as Dangote's, a functioning market in which products can be sold at commercially viable prices is an important part of the investment environment.
Subsidy removal therefore helped establish conditions more conducive to large-scale domestic refining and private-sector participation.
It would be too strong to claim that subsidy removal alone made the refinery possible: Dangote's refinery project was already under development before the subsidy was removed. The more defensible point is that the reform changed the market structure in which the refinery would operate.
The long-term opportunity is a more competitive downstream sector, stronger domestic supply and less dependence on imported finished fuel.
PETROL, DIESEL AND JET FUEL: ONE CRISIS, DIFFERENT CONSEQUENCES
The international shock affects different products in different ways. Petrol (PMS) affects motorists, commercial transport, delivery services and household travel costs.
Diesel (AGO) is essential to many factories, construction sites, farms, generators and logistics operations. Higher diesel prices can increase the cost of producing and transporting food, manufactured goods and building materials.
Jet fuel (Jet A-1) affects airlines directly. Higher aviation fuel costs can place pressure on ticket prices, flight schedules and the financial performance of carriers.
Nigeria's domestic refining capacity has helped improve the availability of aviation fuel, according to industry reporting, but Jet A-1 prices remain linked to international benchmarks, foreign exchange and distribution costs. The lesson is straightforward: domestic production can strengthen supply security without making the country immune to global price movements.
HOW DOES NIGERIA COMPARE WITH OTHER COUNTRIES?
International comparisons help put pump prices into perspective. The figures above are indicative retail petrol prices reported in October 2026, converted approximately into US dollars per litre. Exchange rates, taxes, local transport costs and the dates of individual price observations affect the comparison.
The United Kingdom, South Africa and Ghana are included as reference markets. These are comparisons of petrol pump prices, not the cost of diesel or aviation fuel.
The important point is that Nigeria's petrol price can remain below the prices paid in several other markets while still rising significantly for Nigerian households.
A NEW ROLE FOR GOVERNMENT
The Federal Government's response to the current shock demonstrates that market-based pricing does not prevent targeted intervention.
On 9 October, NNPC Retail agreed to forgo its retail profit margin and sell petrol at cost for 30 days, with the stated aim of cushioning the impact of global price volatility on vulnerable households and commercial transport users. The government also called on other marketers to consider similar measures.
This is different from restoring a blanket subsidy. It is a targeted commercial measure intended to offer temporary relief while retaining the broader market framework.
The next priority is to ensure that domestic crude supply reaches local refineries reliably, competition remains healthy, distribution costs are controlled and the benefits of domestic refining reach consumers.
MY EDGE
Nigeria's fuel story is bigger than the price displayed on a filling-station sign. It is a story about global energy security, the vulnerability of shipping routes, the influence of major oil producers and the importance of building domestic refining capacity.
President Bola Ahmed Tinubu's removal of the fuel subsidy marked a major change in the downstream market. The Dangote Refinery represents a significant addition to Nigeria's industrial capacity, creating an opportunity to reduce dependence on imported finished products and strengthen domestic supply.
These developments do not mean Nigerians are insulated from international oil shocks. They mean Nigeria has a stronger opportunity to respond through local production, competition and targeted support.
For me, the strategic objective should be clear:
produce more of the energy products Nigeria consumes, reduce unnecessary import dependence, strengthen supply security and make the domestic market work more efficiently for Nigerians.
That is how an oil-producing nation can turn its natural resources into lasting industrial strength.
YOUR EDGE
Do you believe Nigeria's investment in domestic refining will make the country more resilient to future global oil crises?
What should be the next priority: reliable crude supply to local refineries, stronger competition among marketers, lower distribution costs or targeted support for households and businesses?
Share your views.
NIGERIA RISING & RENEWED HOPE
The reforms. The numbers. The people. The debate.
Nigeria Rising. The work continues.
What practical steps can ordinary people take to cope with rising fuel prices and the cost of living?”
ReplyDeleteInvest in Solar for your home and take up the government’s CNG-free conversion for your car, a very cheap alternative which will bring down costs drastically.
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