Managing oil windfall and its vulnerability

That confidence warrants protection. If the current oil price surge driven by the US-Israeli-Iran military conflict and the effective closure of the Strait of Hormuz transmits through Nigeria’s fuel import dependency into a significant reversal of consumer prices, the MPC may need to pause or reconsider its easing trajectory. Higher interest rates have real costs: for credit, for investment, for the state governments and businesses that borrow. The case for a fiscal buffer is, in part, a case for protecting the conditions in which monetary easing can continue.

The case for a Windfall Stabilisation Framework (WSF) is strong. The framework I have in mind is not a return to fuel subsidies. It is emphatically not. The subsidy removal was correct, its logic remains sound, and nothing in what follows disturbs it. Petroleum prices would remain fully market-determined. The framework operates on the demand side and the production side, not on price.

It would work as follows. A defined maximum share — around 30 percent — of the net freely-disposable surplus above the budget benchmark would flow into a dedicated Windfall Stabilisation Account, legally ring-fenced from the general federation budget. The remaining 70 percent would continue through the Federation Account Allocation Committee and other sovereign wealth fund mechanisms as normal.

The account would activate automatically when Brent exceeds a specified trigger price, and close automatically when prices normalise (or the Hormuz disruption resolves). Any continuation beyond 90 days would require explicit presidential re-authorisation. Termination is the default; continuation is the decision.

Disbursements would target two areas. On the consumption side: monthly transfers to lower-income households (bottom 40 per cent of income earners) via NIN-verified platforms using the existing National Social Investment Programme infrastructure, or more advisably, an improvement of the said infrastructure, calibrated to offset the household cost of higher transportation and energy prices. On the production side: fertiliser and input support for smallholder farmers — particularly important given that China’s response to the global energy crisis has included suspending fertiliser exports, tightening supply chains on which much of Nigerian agriculture depends — and support for dry-season irrigation to maintain food production momentum.

What the rest of the world did

Global Trade Alert (GTA) has been tracking policy responses to this crisis in real time.

Start with the advanced economies. The United States released 172 million barrels from its Strategic Petroleum Reserve — the largest single SPR deployment in history. Japan released a record 80 million barrels at pre-war prices, explicitly absorbing the cost differential on behalf of its domestic economy. South Korea released a record 22.46 million barrels. Germany released 19.7 million.

France, the United Kingdom, Canada, Spain, Italy, Australia, and the Netherlands all made coordinated releases through the IEA. In total, over 360 million barrels, roughly four days of global oil consumption, was injected into markets within a fortnight. These were not emergency improvisation. They were the deployment of instruments built, maintained, and funded over decades precisely for moments like this one.

Then look at the fiscal responses. Austria announced a five cent per litre fuel tax cut paired with a cap on retailer margins that only triggers when margins exceed pre-crisis levels by 50 per cent; a precision instrument calibrated to help consumers without rewarding speculative mark-ups. Turkey reactivated a pre-built sliding scale that automatically absorbed 75 per cent of pump price increases. South Korea prepared a dedicated supplementary budget for oil shock relief. The United Kingdom allocated GBP 53 million specifically for heating oil support to vulnerable households. India directed its state-owned oil companies to freeze retail petrol and diesel prices and absorb losses of approximately Rs20 per litre from their own balance sheets rather than pass the cost to consumers.

Now look at Africa, because this is where the comparison becomes most pointed. Ghana raised fuel prices, petrol up 11 percent, diesel up 26 percent in a single pricing window. Not because it wanted to, but because it had no instrument with which to avoid it. Kenya did something different. Its Energy and Petroleum Regulatory Authority maintained prices for the full March–April cycle despite rising landed costs, deploying a pre-existing stabilisation fund to absorb KSh 6.53 per litre on diesel. Same continent. Same shock. Radically different outcomes. The difference was not political will. It was the presence or absence of a purpose-built buffer.

Read Also: World Bank: only 10.5 per cent of Nigerian women in paid employment

Nigeria appears nowhere in this picture yet. Not in the SPR releases — because we have no SPR of comparable scale. Not in the targeted cushion column — because we have not activated one. Not in the rationing column which is the one place we should be grateful to be absent.

The balance worth striking

The reform programme has brought Nigeria to a position of genuine macroeconomic progress which has attracted global acclaim and confidence. Protecting that progress from an externally generated shock, using a portion of the revenue that the very same shock is generating, through a transparent, time-limited, automatically self-terminating instrument, is not a retreat from reform. It is what reform was always meant to make possible: the fiscal capacity to protect citizens when the world delivers a crisis they did not cause.

Every government in the GTA dataset made a choice about how to respond. The quality of that choice was determined, more than anything else, by what instruments they had built before the crisis arrived. The WSF is Nigeria’s opportunity to make that choice well — calibrated to the net available windfall, preceded by the understanding of liabilities affecting the gross windfall, and designed to close automatically when the crisis passes. The window to act is open. The resources, qualified as they are, exist. The case is made by 33 governments that did not wait.

•Ringim, a policy, economics and governance enthusiast writes from Kaduna and can be reached via haleemabdul1999@gmail.com