Fuel Price Spike Puts Nigerian Firms at Risk – CPPE
The Centre for the Promotion of Private Enterprise has warned that Nigerian businesses face mounting existential threats from the current surge in global energy prices, driven by escalating geopolitical tensions in the Middle East that have pushed crude oil to $100 per barrel and refined fuel above N1,000 per litre.
In an advisory note titled “Mitigating the impact of energy cost escalation: what businesses and governments should do,” the private sector advocacy group said the crisis has exposed the structural vulnerability of Nigerian enterprises to external shocks in global energy markets, particularly given their heavy dependence on fossil fuels to sustain operations amid persistent electricity supply failures.
The document, signed by the Centre’s Chief Executive Officer, Dr Muda Yusuf, outlined urgent strategies for businesses and government interventions required to prevent widespread economic disruption, warning that without deliberate adjustments and supportive policy measures, rising energy costs could significantly erode profit margins, weaken business sustainability and dampen economic growth.
“For Nigerian businesses, resilience will depend on improving energy efficiency, diversifying energy sources, strengthening financial management and improving logistics efficiency,” the advisory stated. “The crisis underscores the urgency of accelerating reforms in electricity supply, renewable energy adoption and domestic refining capacity by the government.”
The warning comes as sustained military conflict in the Middle East and the subsequent suspension of crude oil shipments through the Strait of Hormuz have triggered dramatic increases in global oil prices, intensifying cost pressures for businesses across multiple economies. The Strait of Hormuz, a narrow passage between the Persian Gulf and the Gulf of Oman, serves as the world’s most critical oil chokepoint, with approximately 21 million barrels per day passing through the waterway in 2023, according to the United States Energy Information Administration. This represents roughly 21 percent of global petroleum liquids consumption, making any disruption to shipping through the strait a major catalyst for price spikes.
For Nigeria, the impact is particularly severe because enterprises depend overwhelmingly on petrol and diesel generators to power their operations in the absence of reliable grid electricity, while simultaneously facing escalating transport and distribution costs driven by higher energy prices.
“In Nigeria, the impact is especially severe because enterprises depend heavily on petrol and diesel to power their operations amid persistent electricity supply challenges, while also facing rising transport and distribution costs due to higher energy prices,” the CPPE stated. “The combined effect is a significant escalation in operating expenses, mounting pressure on profit margins, and heightened risks to business sustainability, particularly for small and medium enterprises.”
Nigeria’s electricity crisis remains one of the most intractable challenges facing the economy. Despite having an installed generation capacity of approximately 12,500 megawatts, the national grid consistently delivers between 3,000 and 5,000 megawatts to a population exceeding 220 million people. By comparison, South Africa, with a population of 60 million, generates over 40,000 megawatts. The persistent gap between electricity demand and supply has forced Nigerian businesses to rely on diesel and petrol generators, with estimates suggesting that private generators account for nearly 40 percent of total electricity consumption in the country.
Data from the Nigerian Electricity Regulatory Commission indicates that industrial and commercial consumers spend an estimated $14 billion annually on alternative power sources, primarily diesel generators, to compensate for grid inadequacies. This heavy reliance on fossil fuel generators makes Nigerian enterprises exceptionally vulnerable to global oil price volatility.
The CPPE noted that businesses are already contending with multiple macroeconomic pressures including high inflation, elevated interest rates and weak consumer purchasing power, making the latest escalation in energy costs particularly damaging.
“Businesses are already contending with multiple macroeconomic pressures including high inflation, elevated interest rates and weak consumer purchasing power,” the advisory stated. “The latest escalation in energy costs therefore compounds an already challenging operating environment. Without deliberate adjustments by businesses and supportive policy interventions from the government, rising energy costs could significantly erode profit margins, weaken business sustainability and dampen economic growth.”
Nigeria’s inflation rate stood at 24.8 percent in January 2026 according to the National Bureau of Statistics, while the Central Bank of Nigeria’s monetary policy rate remained at 27.5 percent as of March 2026, reflecting sustained efforts to control price pressures. These conditions have severely compressed consumer purchasing power and increased the cost of credit for businesses seeking to expand or manage cash flow challenges.
The CPPE identified improving energy efficiency as the quickest and most cost-effective strategy for businesses to manage rising energy costs, urging firms to undertake comprehensive reviews of their energy consumption patterns with the objective of minimizing waste and maximizing productivity per unit of energy used.
“Businesses should intensify efforts to improve energy efficiency within their operations as a key strategy for managing rising fuel costs,” the advisory stated. “This includes optimising generator operating hours, deploying energy-efficient machinery and equipment, strengthening internal energy management practices, and promoting energy conservation among staff. Even relatively modest improvements in energy efficiency can yield significant reductions in fuel consumption and operating expenses, thereby helping to cushion the impact of escalating energy prices on business sustainability.”
On energy diversification, the Centre emphasized the strategic importance of reducing excessive dependence on diesel and petrol generators, which exposes firms to significant fuel price volatility. It advised businesses to gradually explore alternative energy solutions including solar power systems, hybrid energy systems combining solar with generators, and gas-powered generators in locations where gas infrastructure is available.
“The current crisis highlights the strategic importance of energy diversification. Nigerian businesses remain excessively dependent on diesel and petrol generators for electricity generation,” the CPPE stated. “While the upfront investment cost may appear significant, the long-term savings from renewable and hybrid energy solutions are becoming increasingly compelling in the face of persistently high fuel prices.”
Nigeria’s solar energy potential remains largely untapped despite the country receiving an average of 5.5 kilowatt hours per square meter of solar radiation daily, one of the highest levels globally. The country has set a target of generating 30 percent of its electricity from renewable sources by 2030, but current renewable energy contribution to the national grid remains below five percent.
Additional strategies recommended for businesses include improving logistics and supply chain efficiency to reduce transportation costs, adopting flexible pricing and cost management strategies to maintain competitiveness while protecting margins, strengthening cash flow and financial management to weather volatility, and leveraging cluster-based solutions where groups of businesses can collectively invest in shared energy infrastructure to reduce individual cost burdens.
For government intervention, the CPPE called for urgent expansion of fiscal and regulatory incentives that encourage businesses to adopt renewable energy solutions, including tax incentives for solar installations, import duty waivers for renewable energy equipment and fiscal support for investments in energy-efficient technologies.
“Priority should be on expanding fiscal and regulatory incentives that encourage businesses to adopt renewable energy solutions. This may include tax incentives for solar installations, import duty waivers for renewable energy equipment and fiscal support for investments in energy-efficient technologies,” the Centre stated. “Such measures would help reduce the structural energy cost burden faced by Nigerian businesses.”
Other government assistance measures outlined in the advisory include providing affordable financing for energy transition through development finance institutions and commercial banks, strengthening domestic refining capacity to reduce dependence on imported refined petroleum products, and improving electricity supply reliability through accelerated investment in transmission and distribution infrastructure.
Nigeria’s four state-owned refineries in Port Harcourt, Warri and Kaduna have remained largely non-functional for years, forcing the country to import over 90 percent of its refined petroleum products despite being Africa’s largest crude oil producer. The Dangote Petroleum Refinery, which commenced operations in 2023 with a capacity of 650,000 barrels per day, represents the largest single investment in domestic refining infrastructure but has faced challenges in securing consistent crude oil supply and pricing disputes with regulatory authorities.
The Petroleum Industry Act of 2021 was designed to reform Nigeria’s oil and gas sector and attract investment into domestic refining, but implementation has been slow and contested. Analysts have noted that structural reforms in the downstream petroleum sector, including full deregulation and removal of remaining subsidies, remain politically sensitive despite their potential to improve market efficiency and reduce fiscal burdens.
The CPPE’s warning reflects growing concern among business organizations about the sustainability of current operating conditions. The Manufacturers Association of Nigeria has previously reported that over 800 manufacturing firms shut down operations between 2015 and 2022, with energy costs cited as a primary factor alongside foreign exchange constraints and high interest rates.
Small and medium enterprises, which account for nearly 50 percent of Nigeria’s GDP and over 80 percent of employment according to the Small and Medium Enterprises Development Agency of Nigeria, are particularly vulnerable to energy cost shocks due to their limited financial buffers and reduced access to affordable credit.
The Middle East conflict that has driven the current energy price surge shows no signs of immediate resolution. Tensions involving Israel, Iran, and regional actors have periodically disrupted global oil markets over several decades, but the closure of the Strait of Hormuz represents one of the most significant supply disruptions in recent years. Previous closures or threats to the strait, including during the Iran-Iraq War in the 1980s and periodic tensions in the 2010s, have consistently resulted in sharp oil price increases.
Energy economists have noted that the current price environment could persist for several months depending on the trajectory of the conflict and diplomatic efforts to restore shipping routes. This timeline makes short-term adaptation measures by businesses and government support mechanisms particularly critical to preventing widespread economic disruption in Nigeria.
The CPPE has not indicated whether it plans follow-up engagements with government agencies or specific sectoral associations to advance the recommendations outlined in its advisory. However, the document represents the latest in a series of interventions by private sector groups seeking policy reforms to improve Nigeria’s business environment and reduce structural cost burdens.