The Naira-for-crude oil transaction framework presents significant risks that could affect Nigeria’s foreign exchange stability and deter Foreign Direct Investment (FDI), Olufemi Adewole, Executive Secretary, Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN) has said.
Adewole highlighted concerns over the volatility of the Naira, emphasizing that crude oil transactions are traditionally carried out in U.S. dollars due to its stability and global acceptability. He cautioned that failure to align with this international standard could isolate Nigeria from global markets, diminishing trade opportunities and discouraging investment inflows. “The global oil market operates in U.S. dollars due to its stability. Continuing the policy could alienate trade partners and investors who rely on the predictability of the dollar,” he stated.
Impact on Nigeria’s Competitiveness and Economic Growth
Adewole stressed the need for policies that recognize the unique nature of the oil and gas sector to ensure sustained national competitiveness. He noted that reactionary policies often create skewed economic benefits that primarily favor select industry players rather than the broader economy.
Citing the historical instability of the Naira due to inflationary pressures and fluctuating exchange rates, Adewole asserted that tying crude oil transactions to the Naira could exacerbate these challenges. “The Naira has experienced significant fluctuations over the years, driven by inflation and exchange rate instability. If crude oil transactions are linked to the Naira, these issues will only worsen, potentially triggering capital flight and causing foreign investors to seek alternative markets. This would negatively impact Nigeria’s economic growth, the sustainability of the sector, and the efficiency of the oil and gas value chain,” he said.
Strain on Foreign Exchange Reserves
Adewole further warned that Naira-for-crude transactions could place an unsustainable burden on Nigeria’s foreign exchange reserves. He argued that the Central Bank of Nigeria (CBN) might struggle to maintain currency stability amid insufficient dollar inflows, leading to additional economic strain.
“It is almost inevitable that implementing this policy could further deplete Nigeria’s foreign exchange reserves. The CBN may find it increasingly difficult to stabilize the Naira due to inadequate dollar inflows. Given that oil transactions have historically been a primary source of foreign exchange, disrupting this mechanism will likely intensify economic pressures,” he explained.
Balancing Economic Sovereignty with Global Market Realities
While proponents of the policy argue that Naira-for-crude transactions could enhance economic sovereignty and strengthen the local currency, Adewole emphasized that policy decisions must prioritize sustainable economic impact.
“DAPPMAN supports all efforts and policies aimed at strengthening the Naira. However, these strategies must be capable of driving major economic reforms that address the underlying causes of the Naira’s weakness. Nigeria must strike a balance between national interests and global market realities. Economic policies are most effective when they are not shaped by sector-specific demands but rather by long-term economic sustainability,” he said.
Lessons from Venezuela’s Failed Attempt
Adewole referenced Venezuela’s unsuccessful attempt in the early 2000s to replace the U.S. dollar with its local currency in oil transactions, which contributed to severe economic destabilization.
“Nigeria needs to tread cautiously and learn from historical precedents. Policies that disrupt established international trade norms without adequate safeguards can have unintended consequences. We must ensure that our policies are designed to maximize benefits for all Nigerians,” he advised.
Regulatory Collaboration for a Sustainable Energy Sector
DAPPMAN, according to Adewole, remains committed to working with regulators and other stakeholders to promote efficiency and seamless access to “reliable, safe, and world-class solutions” in the downstream sector. He reiterated the need for policies that align with international market realities while ensuring long-term economic stability for Nigeria.
“The future of Nigeria’s oil and gas sector depends on pragmatic policies that facilitate investment, encourage transparent competitiveness, and protect the nation’s foreign exchange reserves. By fostering an enabling environment for private-sector participation, Nigeria can achieve a sustainable energy landscape that benefits the economy,” he concluded.
