Rising oil prices could push petrol discount bill to N114bn

Nigeria’s month-old programme to sell petrol at a discount through filling stations operated by state-owned Nigerian National Petroleum Company Limited (NNPC) faces mounting fiscal pressure as crude oil prices climb amid escalating conflict in the Middle East, BusinessDay analysis has revealed.

Brent, the global benchmark for Nigeria’s crude oil, approached $110 a barrel earlier on Monday, while Brent and US benchmark West Texas Intermediate (WTI) have both traded above $100 as fighting around the Strait of Hormuz and the Red Sea disrupts shipping.

Goldman Sachs has warned that prices could reach $120 a barrel if attacks on vessels intensify. Each increase in crude prices widens the gap the government has to fill, experts said, and the scheme has no clear end date.

How the scheme works

Taiwo Oyedele, minister of finance, announced the 30-day intervention on October 8, which requires NNPC retail outlets to sell petrol at cost, without a profit margin.

The government also proposed a wholesale price benchmark of N1,350 per litre while refiners and importers would absorb costs above that level and recover the losses when crude prices fall.

Other measures include forward crude sales to domestic refineries, a national strategic fuel reserve, wider cash transfers and extra support for vulnerable households. The government has yet to publish what the package will cost.

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Rising bills

Using a discount of ₦66 per litre at NNPC stations and estimated national demand of about 50 million litres a day, the programme would cost approximately ₦3.3 billion daily, or ₦99 billion over 30 days.

BusinessDay’s scenario calculation shows that the estimated bill could rise to about ₦114 billion if Brent crude reaches $120 per barrel and the cost of the intervention increases in direct proportion to crude prices.

This would represent an additional ₦14.9 billion, or 15.1 percent, above the estimated 30-day cost of ₦99 billion, based on Brent’s closing price of $104.28 per barrel on October 8, when the government announced the intervention.

The calculation illustrates the potential fiscal exposure as conflict in the Middle East threatens oil supplies and disrupts shipping routes. However, the estimate assumes that the cost of the scheme rises in line with Brent prices, a relationship the government has not publicly established.

If the discount remains fixed at ₦66 per litre and daily demand stays at 50 million litres, the estimated 30-day cost would remain ₦99 billion under those assumptions.

Extension would cost more

BMI, a unit of Fitch Solutions, put the cost at 0.2 percent to 0.4 percent of gross domestic product in a report titled “Fuel Discount Mechanism Raises Macro Risks in Nigeria”, assuming the measures end in early the second quarter of 2027.

The research firm applied to the National Bureau of Statistics’ 2025 nominal GDP of about N441.5 trillion, that range equals about N883 billion to N1.77 trillion.

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BMI said it expects the discount to stay in place for about six months rather than 30 days, and to be phased out in late first-quarter or early second-quarter 2027. It cited an expected U.S.-Iran agreement that could bring crude prices down.

The research firm warned that a longer-running scheme could hurt government revenue, worsen the fiscal position and put fresh pressure on the naira. It kept its forecast for the budget deficit to widen to 3.3 percent of GDP in 2026 from 1.7 percent in 2025.

It acknowledged that the scheme differs significantly from Nigeria’s earlier petrol subsidy regime, which the government ended in 2023.

Election year

Nigeria holds general elections in January 2027, and BMI said the package fits with pre-election spending increases already built into its forecasts.

Jide Pratts, country manager at digital trading platform TradeGrid, said the government risked sliding back into subsidies without a clear price window capturing the full cost of crude from refining to market.

“The old subsidy was an aberration because we couldn’t monitor it,” he said, adding that without digital tools to trace spending, “we might be going back to the same thing.”

Olatide Jeremiah, chief executive of energy analysis firm Petroleumprice.ng, told BusinessDay that a more efficient scheme would be for the federal government to restructure subsidy in a way that’s targeted to gantry and pump price reduction simultaneously.

“Subsidy should be for a specific set of targeted audience, not for everyone, just like it’s done everywhere in the world,” Jeremiah said.

Global backdrop

The outlook for crude offers little relief. Helima Croft of RBC Capital Markets said Brent could top $120 by year-end if fighting continues, according to Reuters.

She said Yemen’s Houthis had taken the Red Sea port of Mokha, which would allow more direct attacks on Saudi energy infrastructure and tankers, and that maritime traffic through the Bab el-Mandeb strait was “gravely imperilled”.

The rally has pushed up bond yields and revived inflation fears. JP Morgan forecasts that eight to nine developed economies, including the United States, Japan, Australia, New Zealand and several European central banks, could raise interest rates by the end of the year.

Asian governments are expected to extend financial help to businesses and households as diesel prices surge, Bloomberg reported.

Donald Trump, United States president, said earlier this week the war would end after the November elections. Many analysts doubt that, with fighting continuing and neither side raising peace talks.