Naira-for-crude Deal Could Have Negative Impact On Nigeria’s Economy – Depot Owners

Executive Secretary of the Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN), Olufemi Adewole, has warned that continuing with the implementation of the naira-for-crude policy could have a negative impact on Nigeria’s economy.

Oluwole stated that the sale of crude oil in naira by the Federal Government to the Dangote Petroleum Refinery and other local refiners poses significant risks to Nigeria’s foreign exchange stability and even foreign direct investment.

In a statement on Monday, DAPPMAN executive secretary emphasised that transactions involving crude oil were traditionally conducted in US dollars because of its stability and international acceptance, highlighting concerns about the naira’s volatility and the risks of maintaining the naira-for-crude policy on foreign exchange stability.

The Federal Government, through a technical sub-committee headed by the Executive Chairman of the Federal Inland Revenue Service, Zacch Adedeji, had in October last year commenced implementation of the naira-for-crude policy, which allows the Nigeria National Petroleum Company Limited (NNPCL) to sell crude oil in naira to Dangote Refinery and other domestic producers. The initiative, as explained by the committee, was to reduce foreign exchange pressure and make refined petroleum products affordable to Nigerians.

Last week, Dangote refinery suspended the sale of petroleum products in naira due to the alleged failure of NNPC to sell more crude in naira to the company.

The development has raised fears about an impending hike in prices of petroleum products since the domestic refiner is now sourcing crude oil in dollars, including through imports.

However, the DAPPMAN boss warned that if Nigeria doesn’t conform to the international system of crude oil transactions, it may be cut off from international markets, which would, according to him, reduce trade prospects and deter foreign investments in the country.

“The global oil market operates in US dollars due to its stability. Continuing the policy could alienate trade partners and investors who rely on the predictability of the dollar,” he stated.

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Adewole emphasised the necessity for formulating policies that acknowledge the unique nature of the oil and gas industry in order to boost national competitiveness.

He further stated that given that naira has experienced volatility in the foreign exchange market over the years, driven by inflation and exchange rate instability, tying crude oil transactions to the local currency may worsen the situation, “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 warned.

He further warned that the naira-for-crude policy could affect the foreign exchange reserves and also impair the ability of the Central Bank of Nigeria (CBN) to maintain currency stability, as there will be insufficient dollar inflow.

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“It is almost inevitable that implementing this policy could further deplete Nigeria’s foreign exchange reserves. The CBN may find it increasingly difficult to stabilise 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,” Oluwole stated.

While stating that DAPPMAN supports all efforts and policies of the Federal Government aimed at strengthening the naira, he, however, insisted that they “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 explained.

He made reference to how Venezuela made unsuccessful attempts to use its local currency in crude oil transactions instead of the US dollars, claiming that this led to significant economic instability in the South American country.

He urged the Nigerian government to adopt policies that have far-reaching positive impacts and lead to long-term economic sustainability.