By Hosea Parah, Abuja

Nigeria’s energy industry is heading into the second quarter of 2026 facing mounting global uncertainty, triggered by the disruption of oil flows through the Strait of Hormuz. The development has tightened global supply and driven a sharp rise in energy prices, creating a new and more volatile operating environment.

The shift marks a stark contrast from the first quarter of the year, which was largely defined by domestic progress. Key among these was the expansion of refining capacity led by the Dangote Refinery and improvements in gas infrastructure. Those gains are now being tested by external shocks beyond Nigeria’s control.

Globally, the disruption has removed about one-fifth of seaborne oil supply, sending crude prices into the $95–$120 per barrel range. At the same time, refined fuel markets have become increasingly unstable, with prices for petrol, diesel, and aviation fuel rising sharply and behaving independently of crude trends.

For Nigeria, the implications are mixed. On one hand, higher oil prices are boosting government revenues. On the other, increased import costs and a stronger dollar are placing additional strain on the naira and the broader economy.

A key buffer against the crisis is Nigeria’s improved domestic refining capacity. The Dangote Refinery, operating at up to 85% capacity, alongside modular refineries, is now supplying between 75% and 85% of the country’s fuel needs. This represents a major shift from previous years, when Nigeria was heavily reliant on imports.

Industry observers say this local capacity is helping shield the country from the worst of the global supply crunch. Still, challenges remain. With international fuel prices at elevated levels, there are concerns that producers may prioritize exports over domestic supply. Regulators are therefore under pressure to enforce policies that guarantee sufficient local distribution.

Fuel pricing remains another delicate issue. While global prices continue to climb, domestic petrol prices are expected to stay within a ₦800 to ₦1,200 per litre range, supported by increased oil earnings. Diesel, however, is fully deregulated and is projected to see steep increases—potentially up to ₦2,800 per litre—raising costs across key sectors of the economy.

In the upstream sector, crude oil production is expected to rise modestly from Q1 levels of 1.6–1.7 million barrels per day to as high as 1.8 million barrels per day, assuming stable operations. Elevated prices are also encouraging renewed activity in oil-producing regions such as Ogoni, while the anticipated completion of asset sales by Shell plc could unlock fresh investment.

However, higher prices also heighten longstanding risks. Oil theft and pipeline vandalism in the Niger Delta remain significant threats and could undermine production gains if not effectively contained.

On the gas and power front, the commissioning of the OB3 Gas Pipeline is providing improved supply flexibility, enabling more stable electricity generation nationwide. Output is projected to range between 3,500 and 5,200 megawatts.

Despite this progress, rising fuel and gas costs are creating new financial pressures for the power sector. Liquidity challenges persist, and higher generation costs are raising concerns about the ability of distribution companies to meet payment obligations.

Analysts note that the challenge has shifted from supply constraints to affordability, with the sustainability of the power market now a key concern.

In response, the federal government is expected to shift its focus in Q2 toward managing the crisis. Priorities include deploying oil revenue windfalls to stabilize fuel prices, supporting the power sector, tightening security around oil infrastructure, and ensuring consistent gas supply for domestic use.

There are also growing concerns over disputes related to pipeline security contracts in the Niger Delta, which could pose additional risks to production if left unresolved.

Ultimately, the months ahead will be critical. If Nigeria can sustain domestic refining, maintain stable gas supply, and effectively manage increased revenues, it could strengthen its resilience and reduce its exposure to global disruptions.

Failure to do so, however, could see a return to familiar challenges—fuel shortages, fiscal strain, and economic instability—at a time when global energy markets remain highly unpredictable.