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Fuel subsidies as pragmatic policy 16 Apr 2026

Nigerian policymakers have had several opportunities to reassess the 2023 decision to end the country’s petrol subsidy programme. Supporters of the policy, whether partisan or independent analysts, have also had time to evaluate its outcomes. So far, only the policy's risks have materialised, while its promises have largely failed to inspire confidence.

The fallout from the US–Israeli war with Iran has presented yet another moment to reexamine the wisdom of Nigeria’s full withdrawal of petrol subsidies. Since the conflict began on 28 February 2026, global oil prices have surged. Brent crude, which traded below $70 per barrel before the war, has hovered above $100 and remains near that threshold. Under a plausible worst-case scenario, which is still difficult to define precisely, prices could climb as high as $200 per barrel.

The current price threshold is so severe that the United States is now urgently seeking an off-ramp from the conflict. With gasoline prices rising by as much as 20 per cent in the US, many Americans are increasingly worried about how this “war of choice” will affect their finances. Unsurprisingly, a majority now oppose or disapprove of the operation – codenamed Operation Epic Fury – according to March 2026 polling by CBS News/YouGov and NPR/PBS.

The severity of the war, during which major oil and gas assets across the six Gulf Cooperation Council (GCC) countries have been repeatedly targeted or severely damaged, with Iran obstructing tanker movements through the Strait of Hormuz, has raised the risk of the global economy sliding into stagflation. Stagflation refers to the simultaneous occurrence of high inflation, rising unemployment, and weak economic growth. While major global actors work to de-escalate the conflict, many countries are already implementing measures to cushion households and businesses against surging energy costs to protect their domestic economies.

The place of subsidies

Since the outbreak of the war, at least 25 countries have introduced or significantly expanded fuel subsidies, tax cuts, or price caps to shield consumers from surging global energy costs. These include both major and smaller oil producers, such as Saudi Arabia and Angola. Even net energy importers that typically champion free market principles, such as Spain, have adopted mechanisms to limit what consumers in critical sectors pay.

As expected, no country has adopted a one size fits all approach to managing the energy shock. Instead, governments have tailored their interventions to protect critical sectors and preserve living standards, based on their fiscal capacity and strategic priorities. Saudi Arabia – the world’s second largest oil producer, consistently pumping over 11 million barrels per day – maintains strict caps on retail fuel prices. Kuwait and Iraq keep prices for “regular” petrol stable while allowing premium or high octane fuels, typically consumed by wealthier households, to fluctuate with market conditions.

While all subsidy programmes aim to protect critical sectors and supply chains, many countries go further by safeguarding the affordability of distributing industrial and consumer goods. This is entirely rational. When logistical costs rise, products either become scarce or more expensive. The resulting direct and indirect effects can trigger cost push inflation, weaken effective demand, and ultimately slow economic growth. No country that takes its economy and citizens’ welfare seriously leaves energy costs outside the scope of necessary intervention.

American fuel subsidies

Nigeria’s removal of petrol subsidies was justified as an alignment with market ideology. Yet the United States – often regarded as the leading champion of free market capitalism – employs multiple mechanisms to subsidise energy costs for its own citizens. A major pillar of this support is its hegemonic geopolitical strategy, which prioritises domestic energy security and affordability. In practice, US energy subsidies amount to trillions of dollars when these geopolitical expenditures are taken into account. For instance, the United States spent an estimated $3 billion on the January 2026 operation that resulted in the capture of Venezuelan President Nicolás Maduro and his wife, Cilia Flores, as part of its broader effort to exert control over Venezuelan oil. President Donald Trump has openly dismissed concerns about the violation of Venezuela’s sovereignty.

At an average cost of about $1 billion per day, the current war with Iran had cost the United States roughly $26 billion by March 26. Yet the Trump administration has requested an additional $200 billion from Congress to prosecute the conflict. Although the US and Israel are aligned in waging this war, their strategic objectives diverge. Israel seeks to maintain military and, therefore, geopolitical dominance over Iran, while the United States pursues a broader goal tied to energy security. This objective has long shaped US military engagements: its first and second wars in Iraq, for example, are estimated to have cost more than $2 trillion. Added to this are the ongoing expenses of maintaining extensive military bases across the Middle East, which form part of the broader cost of securing US energy interests.

Despite these staggering expenditures, the United States still maintains costly domestic programmes designed to limit energy prices for households and businesses. One of the most prominent is the Strategic Petroleum Reserve, which effectively functions as a price stabilisation tool. To soften the impact of supply disruptions during the current war with Iran, the US coordinated with other countries to release about 400 million barrels of crude oil through the International Energy Agency (IEA). In addition, the US government provides billions of dollars in annual tax expenditures that reduce the cost of oil exploration and production for private sector companies. 

Other production incentives include tax write-offs that allow producers to deduct “intangible drilling costs,” such as labour and repairs, as well as marginal well credits, which serve as targeted tax benefits designed to keep older, less efficient wells commercially viable.

The Trump administration also fully embraces the environmental costs associated with energy subsidies. It has rolled back regulations designed to curb carbon emissions from oil production and weakened global mechanisms aimed at advancing the transition to renewable energy and mitigating climate change. These actions prioritise short-term, politically motivated gains in energy security at the expense of the long-term environmental costs that future generations will bear. The International Monetary Fund (IMF) characterises this trade off between low fuel prices and environmental sustainability as an American “implicit” subsidy, estimating its value at $757 billion annually.

The Nigerian intuition

Nigeria has developed an extensive catalogue of arguments against petrol subsidies. Policymakers, political leaders, and much of the public commentariat broadly agree that subsidies disproportionately benefit the rich, are fiscally unsustainable, and encourage petrol smuggling into neighbouring countries. They also argue that subsidies are misdirected toward consumption rather than production, hinder the development of the midstream and downstream segments of the petroleum industry, and crowd out effective investment in infrastructure and social protection. 

In my upcoming book, Youth Breed: How Generations of Nigerian Youth Impact Their Country, I identify what I describe as a “quixotic” argument against energy subsidies: the claim that such subsidies encourage overconsumption. This view has been promoted by the IMF, even in Nigeria’s context of acute energy poverty. In 2025, global electricity consumption per capita averaged 3,000 kilowatt hours (kWh). The UAE and South Africa recorded 10,000 kWh and 3,799 kWh, respectively. Nigeria, by contrast, averaged just 181 kWh.

Guided by misleading intuitions, policy orthodoxy, and a failure to account for Nigeria’s local context, President Bola Ahmed Tinubu announced the total withdrawal of petrol subsidies in May 2023. Nearly three years on, more Nigerians have fallen into poverty as high inflation and weak productivity – both direct consequences of elevated energy costs – have eroded household welfare and business viability. It was amid these deepening vulnerabilities, despite some improvements in headline macroeconomic indicators, that the oil price shock triggered by the war with Iran caught Nigeria unprepared.

As a result, petrol prices in Nigeria rose by up to 40 per cent in March. Over the past three years, the price of petrol has increased by more than 600 per cent. While the United States claims to have decimated Iranian air defences, taken control of Iran’s airspace, and gained the capacity to strike targets in the country at will, Nigerians have dissimilarly lost protection from the surge in domestic fuel prices arising from the conflict. We remain acutely exposed to the economic fallout of a war unfolding far beyond our borders – and far beyond the African continent. 

The Tinubu administration’s inability – or unwillingness – to intervene in the petrol market may be interpreted by market ideologues as a commitment to policy consistency. Yet this would merely reinforce the view that subsidy removal has functioned as a smokescreen. Under Tinubu’s presidency, the elimination of subsidies has reduced transparency within the fiscal framework. The projected savings of N7.5 trillion annually – estimated to reach N11 trillion in 2025 – cannot be traced to seamless financing of capital projects or to any meaningful reduction in reliance on debt. In practice, the supposed fiscal gains remain unaccounted for.

In nearly three years of these so called subsidy savings, funding for social safety net programmes has been inconsistent and shows little prospect of scaling up in the face of rising fuel prices. Meanwhile, the structural problems once used to justify subsidy removal – weak border security and the fragile state of Nigeria’s midstream and downstream petroleum sectors – remain largely unaddressed. Although the Dangote Refinery offers the government a rare opportunity to stimulate investment in domestic refining and distribution, official support for the project has been inconsistent. Rather than protecting and leveraging this private investment to encourage further participation, the government continues to externalise Nigeria’s domestic consumption needs through the importation of petroleum products.

Policy correction

In a worst case scenario where oil prices climb to $200 per barrel and market petrol prices double from current levels, it is difficult to imagine President Tinubu remaining unwilling to reintroduce subsidies. Yet it is equally unlikely that world leaders would allow oil prices to spiral unchecked and trigger a global economic collapse. What is clear, however, is that President Tinubu must act now to prevent a humanitarian breakdown at home, driven by hyperinflation and a broader economic deterioration. Early intervention is essential to stabilise living conditions and avert deeper social and economic distress.

Nigeria, as a major oil producer, should be able to shield its citizens and businesses from extreme volatility in global oil prices. Oil is a natural resource with which the country is abundantly endowed, and this endowment carries an obligation. Citizens – especially the most vulnerable – ought to benefit directly from the nation’s resource wealth, rather than bear the full brunt of external price shocks.

Crucially, subsidy removal has not delivered the promised cure for Nigeria’s long standing economic underperformance. Instead, Nigerians are now bearing the consequences of a state that has lacked the resolve to build a productive and resilient economy. What has emerged is a leadership class more invested in its own comfort than in safeguarding the collective well being of the nation – yet still cloaking its inaction in the language of market efficiency. The result is a policy posture that deepens hardship while offering little in the way of genuine structural reform. 

This has to change. There is no shortage of price-support frameworks that Nigeria can adopt from both oil producers and net importers.

Jide Akintunde, the Managing Editor of Financial Nigeria publications, is the author of the forthcoming book, Youth Breed: How Generations of Nigerian Youth Impact Their Country, due for release in June 2026.