It’s been nearly three weeks since tensions in the Middle East eased. The Strait of Hormuz has been reopened. Oil tankers are moving freely again after months of blockades. Fears of supply shortages are facing, allowing Brent crude to return to near pre-war levels.
Yet, for millions of Nigerians, relief from high fuel prices remains elusive.
At the height of the conflict, petrol pump prices jumped by more than 40% in many parts of the country, sending shockwaves across the economy. Food and transport became more expensive. Businesses faced higher operating costs. Inflation, which had been slowing, came under renewed pressure.
The expectation was that those increases would unwind once oil prices fell. After all, Nigeria now refines most of the petrol it consumes and deregulation has opened the market to greater competition. So far, the decline in oil prices has barely registered at the pump.
How Nigeria relocated the oil shock
For decades, Nigeria imported more than 90% of the petrol it consumed despite being Africa’s largest crude oil producer. That dependence left the country highly exposed to swings in global oil prices. Whenever crude prices rose, shipping costs increased or supply chains were disrupted, the cost of bringing petrol into Nigeria climbed with them.
Consumers, however, were largely insulated from those shocks. Under the fuel subsidy regime, the federal government paid the difference between the regulated pump price and the actual landing cost of imported petrol. Rising oil prices therefore translated into higher subsidy payments rather than higher prices at filling stations.
That arrangement became increasingly difficult to sustain. Nigeria spent nearly ₦4.3 trillion on fuel subsidies in 2022 alone, more than it allocated to capital projects that year. The subsidy regime also encouraged large-scale smuggling, fuelled corruption and discouraged investment in domestic refining, strengthening the case for reform.
The first step came with the Petroleum Industry Act (PIA) in 2021, which overhauled the sector’s regulatory framework and opened the downstream market to greater private participation. Two years later, President Bola Tinubu removed the fuel subsidy, allowing petrol prices to respond more directly to market conditions.
The timing proved significant.
Around the same period, the Dangote Refinery began commercial operations. With a nameplate capacity of 650,000 barrels per day, the facility has the potential to meet almost all of Nigeria’s petrol demand. Imports have fallen sharply as a result, fundamentally changing the country’s fuel supply chain.
That should have made Nigeria less vulnerable to external disruptions.
It did, but not in the way many expected.
The country is no longer importing most of its petrol. Yet the prices Nigerians pay remain closely tied to the global oil market. The difference is that the volatility has changed address.
Before deregulation, oil shocks landed first on government finances through higher subsidy payments. Today they reach households much more directly through higher pump prices.
The scale of that shift became apparent after subsidy removal in May 2023. Petrol prices jumped from about ₦198 per litre to roughly ₦500 overnight before climbing to ₦617 within two months as subsidy removal coincided with the naira’s depreciation.
Recent geopolitical tensions offered another reminder. As Brent crude briefly climbed above $100 a barrel, petrol prices rose to around ₦1,500 per litre in many parts of the country, up from roughly ₦800 before the conflict began. At the same time, the average retail price of diesel reached ₦3,277.47 per litre in May 2026. This marked an increase of 86.4% from a year earlier and 32.4% from April alone, according to the National Bureau of Statistics
In an economy where fuel powers the movement of people, food and goods, the impact quickly spread far beyond filling stations.
The peace deal that should have brought relief
After more than three months of military confrontation and stalled negotiations, the US and Iran agreed to a ceasefire last month, bringing active hostilities to an end. Attention quickly shifted from the battlefield back to the Strait of Hormuz, through which roughly a fifth of the world’s oil passes.
The turnaround came faster than many expected. Tankers began returning to the waterway almost immediately. Morgan Stanley, quoted by Bloomberg, said 35 oil and gas tankers exited the Strait on Thursday, the first time traffic had returned to its normal pre-conflict range.
Oil prices responded in kind. Brent crude, the global benchmark, fell to about $70.78 a barrel, while U.S. West Texas Intermediate dropped to $67.74. Both benchmarks had also declined more than 1% the previous trading session as fears of prolonged supply disruptions faded.
The reaction was quickly felt in Nigeria’s wholesale fuel market.
Dangote Refinery, which now supplies more than 80% of domestic petrol consumption, began cutting its gantry price, the rate at which marketers buy petrol directly from the refinery. By July 2, it had reduced the price from ₦1,250 to ₦1,075 per litre over the course of a month.
The reductions, however, remained far less visible at filling stations.
As of late last week, motorists in major cities such as Lagos and Abuja were still paying between ₦1,160 and ₦1,240 per litre, while prices in several other states had barely changed.
Why prices rise like rockets but fall like feathers
In Nigeria, petrol prices have historically risen much faster than they fall. Economists call this the “rockets and feathers” phenomenon.
For many consumers, that makes little sense. If Nigeria now refines most of the petrol it consumes, why haven’t lower crude prices translated into equally lower prices at the pump?
Analysts say the answer begins with how crude oil is priced.
The Centre for the Promotion of Private Enterprise (CPPE), a Lagos-based think-tank, argues that local refining does not necessarily mean cheaper feedstock. While refining at home eliminates freight, marine insurance and other import logistics costs, crude itself continues to be valued against international benchmarks.
As the CPPE President Muda Yusuf explains: “Although domestic crude transactions may be settled in naira under special arrangements, the underlying valuation is still largely based on the naira equivalent of global crude prices. This means that domestic refining operations remain substantially exposed to global crude oil price movements with no price advantage in crude procurement.”
Dangote Refinery has repeatedly echoed the same point. Across several public statements, it has maintained that all crude—whether purchased locally or internationally, whether paid for in naira or dollars—is priced against global benchmarks. Nigerian grades typically trade at a premium of between $3 and $6 a barrel above Brent, not at a discount.
The same principle applies to the government’s naira-for-crude arrangement. The policy changes the currency used to settle transactions, not the value of the crude itself. But the problem extends beyond crude pricing.
Despite reforms that have improved pipeline security and reduced crude theft, Nigeria still produces less oil than it once did. According to Intelpoint’s 2026 Nigerian Energy Industry Report, output recovered to about 1.7 million barrels of crude oil per day in 2025, a notable improvement from recent lows. Still, production remains well below the country’s historical peak of 2.5 million barrels per day and the 2 million barrels per day assumed in the 2026 federal budget.
The shortfall forces refiners to look abroad to meet supply needs.
As recently as March, Dangote said it receives only about five cargoes of domestic crude each month under the naira-for-crude arrangement, against a requirement of between 13 and 15. The balance, the refinery noted, is sourced from Angola, Libya and the United States.
Nigeria is also importing large volumes of gasoline blendstock. Between January and May 2026 alone, imports reached 1.46 billion litres, according to the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA). Those purchases are made at international prices, deepening exposure to exchange-rate volatility.
But even when refinery costs begin to fall, motorists often have to wait longer for pump prices to follow.
Dangote only sets the gantry price. Retail prices are determined independently by marketers and filling stations, which add transport costs, depot charges and their own margins before fuel reaches consumers. As a result, cuts at the refinery gate rarely translate immediately into cheaper petrol at the pump.
The disconnect has become difficult for the government to ignore. Last week, authorities accused some marketers of using deregulation as a cover for profiteering and directed the NMDPRA to investigate allegations of excessive pricing.
Cost is only one side of the equation. Market structure is the other.
One of the promises of deregulation was that competition would keep prices honest. But that assumption becomes harder to sustain when one supplier dominates the market.
Dangote Refinery has transformed Nigeria’s fuel market, but its sheer scale has also made it the dominant player. With a refining capacity approaching 700,000 barrels per day, it is larger than all of Nigeria’s rehabilitated state-owned refineries and modular plants combined, Intelpoint estimates.
The numbers illustrate that dominance. NMDPRA data show Nigeria consumed an average of 47.4 million litres of petrol a day in May 2026. Domestic production supplied 41.5 million litres, all of it from Dangote Refinery. Imports accounted for just 5.9 million litres, leaving the refinery with an estimated market share of almost 88%.
Some analysts believe government policy has further strengthened that position. Earlier this year, authorities suspended licences for petrol and diesel imports as domestic refining expanded. Although selected marketers have since been allowed to resume imports, official policy continues to favour locally refined fuel.
That has created what energy analyst Tunde Adekunle describes as a “soft monopoly.”
“With imports discouraged, Dangote Refinery has become the dominant supplier, effectively setting depot and retail prices. In a deregulated market, such concentration limits alternatives and suppresses competition.”
Adekunle argues that the lack of competitive pressure is compounded by limited transparency. Unlike many mature fuel markets, Nigeria does not disclose key refinery data such as production costs, refining margins, crude purchase terms or pricing methodology. Without those benchmarks, he says, it is difficult for regulators, competitors and consumers to determine whether pump prices accurately reflect underlying costs.
His argument is straightforward: competition works best when buyers have alternatives and prices can be scrutinised. Until both conditions exist, he believes petrol prices are likely to remain higher than they otherwise would, regardless of where global crude prices trade.
The real test lies ahead
The factors keeping petrol prices elevated today are unlikely to last forever.
As earlier inventories are worked through, more domestic crude becomes available and competition gradually deepens, analysts expect pump prices to continue easing.
But focusing only on where petrol prices settle risks missing the bigger lesson.
The recent crisis exposed just how vulnerable Nigeria remains to events far beyond its borders. A conflict thousands of kilometres away was enough to push up transport costs, food prices and inflation within weeks.
The more important question, therefore, is not how quickly prices fall after this episode. It is whether Nigeria is building an energy system capable of absorbing the next global shock.
The country has made meaningful progress. Local refining has sharply reduced dependence on imported fuel, while reforms are beginning to revive oil production and investment. Those are important gains.
But resilience requires more than replacing imports with domestic supply. It requires a market with genuine competition, strategic fuel reserves that can cushion supply disruptions, and an economy that is less dependent on oil and foreign exchange in the first place.
Above all, it requires consistency. Nigeria’s energy sector has a long history of reforms that begin with ambition but lose momentum as political priorities change. The real test of the current reforms will not be how they perform during today’s crisis, but whether successive governments continue building on them long after this one has passed.
