Subsidy return could push petrol to N2,000, dollar to N3,000 — FG

A petrol subsidy is financial support that covers part of the difference between petrol’s actual cost and the price consumers pay. The government makes up that difference, rather than removing the cost itself. Bringing the subsidy back in Nigeria would therefore mean directing public money toward keeping petrol cheaper at the pump.

The minister said the subsidy could be financed through unpaid salaries and pensions, higher taxes, or money creation. Those choices would reduce funds available for other government needs or add pressure to prices and the currency. The subsidy might offer immediate relief to motorists and transport users.

The government warns that this relief could be temporary. Restoring the subsidy could reduce revenue, raise borrowing costs, encourage capital flight, weaken foreign-exchange reserves and pressure the naira. Oyedele projected that petrol could still reach at least N2,000 per litre, while the naira could approach N3,000 per dollar within months.

Taiwo Oyedele’s projection describes a sharp deterioration in both fuel prices and the exchange rate. If Nigeria restores petrol subsidy, he estimates that petrol would cost at least N2,000 per litre. He also says the naira could approach N3,000 for one US dollar within months.

The forecast reflects the financial strain he expects from paying for subsidy. Government revenue would fall, while borrowing could become more expensive. Investors might move money out of the country, and foreign-exchange reserves could decline. These pressures would make it harder to support the naira.

The prediction is notably higher than the prices and exchange rate Nigerians face today, according to the minister’s comparison. Oyedele argues that a subsidised pump price would not guarantee lasting affordability. Instead, the subsidy could contribute to currency weakness and eventually make imported petrol more expensive.

Restoring subsidy would reduce the money available to government because public funds would cover part of petrol’s cost. Oyedele said this could contribute to a sovereign credit downgrade. A weaker credit assessment can make lenders demand more compensation, raising the government’s borrowing costs.

Higher borrowing costs would put more pressure on government finances. At the same time, concerns about the economy could prompt capital flight, meaning money leaves the country. That would reduce the foreign exchange available to support payments and imports. The minister also expects foreign-exchange reserves to fall.

These pressures can reinforce one another. Lower reserves and capital flight can weaken the naira, while a weaker naira raises the local cost of imported petrol. Oyedele said the resulting instability could reverse progress on inflation and interest-rate reductions. He therefore describes subsidy as short-term relief that creates long-term fragility.

The cost of obtaining or importing petrol still exists under a subsidy. The difference is that consumers do not pay the full amount directly at the pump. Government pays the gap instead, using public revenue or other financing. That is why Oyedele said a subsidy changes how and when the bill is paid.

For example, if petrol costs more to supply than the approved pump price, government must cover the difference for every subsidised litre. The payment can reduce funds for public spending, require higher taxes, or rely on money creation. None of these methods removes the underlying fuel cost.

The burden may appear later in other forms. Oyedele said Nigerians have previously paid through scarcity, inflation and a collapsing currency. The government therefore argues that a lower pump price can conceal wider economic costs. The subsidy may ease expenses immediately, but it can weaken public finances and create greater pressure later.

Oyedele said subsidy or similar government spending can be financed in several damaging ways. Government may delay salaries and pensions, increase taxes, or create new money. Each method supplies funds in the short term, but shifts the cost elsewhere in the economy.

The minister referred to more than 30 trillion naira being printed before the current administration. He said that money creation contributed to the inflation Nigerians are dealing with. Delayed payments can leave workers and pensioners without income on time, while higher taxes reduce what households and businesses can spend.

These effects explain the government’s opposition to returning to a full subsidy regime. Oyedele said each financing route had caused great harm before. Money creation can add inflationary pressure, while unpaid obligations and higher taxes weaken household finances. The government argues that short-term pump-price relief would not justify repeating those economic costs.

The government is proposing targeted measures rather than returning to a broad petrol subsidy. Its aim is to reduce the immediate effect of higher fuel prices while avoiding an open-ended claim on public finances. The approach focuses on transport, household support, credit and alternative fuels.

One measure is a 30-day discount on petrol sold by the Nigerian National Petroleum Company Limited, with priority for public transporters. The government is also negotiating a ceiling of N1,350 per litre on petrol’s ex-gantry or landing cost. Other proposals include increased cash transfers, subsidised credit and faster deployment of compressed natural gas vehicles.

A national strategic fuel reserve is also under consideration. These steps are intended to cushion consumers without recreating the full subsidy burden described by Oyedele. The government remains open to other proposals, but says each must show its cost, sustainable funding method and resulting pump price.

Foreign-exchange reserves give a country financial resources for external payments and help support confidence in its currency. If reserves fall, markets may worry that fewer dollars are available for imports. A weaker currency then makes imported goods, including petrol, costlier in naira. The article links this risk to subsidy financing.

A credit rating signals how risky it may be to lend to a government. If a downgrade raises that perceived risk, borrowing costs can increase. Higher interest rates can slow spending and investment, while inflation reduces the purchasing power of money. These pressures can affect households and businesses through higher prices.

Oyedele said restoring subsidy could reduce revenue, trigger a sovereign credit downgrade, increase borrowing costs, cause capital flight and lower reserves. He also warned that the naira could approach N3,000 per dollar. The government says this could reverse recent progress on inflation and interest-rate reductions.