Fuel Importation and Exchange Rate Stability in Nigeria (Published)
Fuel importation continues to shape Nigeria’s macroeconomic outcomes, particularly in the context of exchange rate movements and overall economic stability. Despite being a major crude oil producer, Nigeria paradoxically depends on imported refined petroleum products to meet domestic demand. This dependence places sustained pressure on the foreign exchange (FX) market, especially because fuel imports are financed largely in US dollars. Over the years, rising import bills, fluctuations in global oil prices, and structural weaknesses in the downstream petroleum sector have collectively heightened exchange rate instability. Evidence from studies conducted between 2018 and 2025 shows that fuel importation contributes to excess demand for FX, accelerates depletion of external reserves, widens the trade deficit, and amplifies naira depreciation. Recent economic reforms—including the removal of fuel subsidies in 2023–2024 and the gradual expansion of domestic refining capacity—have altered the dynamics of fuel importation. Nevertheless, FX pressures remain, reflecting long-standing structural bottlenecks. This seminar paper critically examines the relationship between fuel importation and exchange rate stability in Nigeria. Drawing from theoretical perspectives and empirical findings, the paper demonstrates how energy-sector inefficiencies translate into macroeconomic volatility. It also highlights how emerging domestic refining initiatives could support FX stability if sustainably implemented. Recommendations are provided for policymakers, regulators, and private sector actors to address Nigeria’s fuel–FX imbalance in a sustainable manner.
Keywords: Foreign Exchange Market, Nigeria, balance of payments, domestic refining, exchange rate stability, fuel importation, petroleum downstream sector, subsidy removal