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ANALYSIS: From Libya to Nigeria – The Two Sides of Fuel Subsidy
By Zekeri Idakwo Laruba,
Libya’s struggle to keep fuel available despite having Africa’s largest crude oil reserves offers a striking perspective on Nigeria’s long-running fuel subsidy debate.
Libya heavily subsidises petrol, keeping its pump price below three cents per litre. Yet the country imports much of its refined fuel because its refineries cannot meet domestic demand. The huge gap between subsidised local prices and those in neighbouring countries has encouraged smuggling and corruption, while shortages, particularly of diesel, remain common.
The Libyan experience highlights an often-overlooked side of fuel subsidies: cheap fuel does not necessarily mean an efficient or sustainable fuel system.
Nigeria experienced some of these same problems under its former petrol subsidy regime. The World Bank said Nigeria’s subsidy had become fiscally unsustainable, with its cost rising to 32.4 per cent of total government revenues in 2022. It also created incentives for smuggling into neighbouring countries and contributed to shortages and black-market activity.
President Bola Tinubu therefore announced the removal of the petrol subsidy in May 2023, a decision that fundamentally changed Nigeria’s fuel market.
But unlike the Libyan model of maintaining artificially low prices, Nigeria’s experience has exposed the other side of subsidy removal.
Petrol prices rose sharply, feeding into transportation, food and household costs. The World Bank noted that prices more than tripled from ₦197 to between ₦620 and ₦700 per litre during the initial period of the reform, contributing to inflationary pressure and protests.
The Tinubu administration has consequently faced severe criticism from labour groups, opposition politicians and other critics who argue that the hardship imposed on households has outpaced the benefits of the reform. More recently, rising global oil prices have pushed Nigerian petrol prices even higher, renewing the cost-of-living debate.
There is, however, another side to the argument.
The IMF says the removal of fuel subsidies has helped reduce fiscal vulnerabilities and improve Nigeria’s macroeconomic resilience. The World Bank has similarly argued that ending the subsidy created fiscal space that could be redirected towards social protection and development.
The central question, therefore, may not simply be whether fuel should be subsidised or not. It is who ultimately benefits from the subsidy, who pays for it, and what the government does with the resources after it is removed.
Nigeria’s experience demonstrates that removing a costly subsidy does not automatically translate into improved living standards. The IMF reported in 2026 that the estimated savings from the subsidy removal had not fully accrued to the federal budget, while poverty and food insecurity remained significant concerns. It called for stronger social protection and better targeting of support for vulnerable households.
Libya presents the opposite warning: keeping fuel extremely cheap can protect consumers at the pump while simultaneously encouraging smuggling, shortages and waste, and consuming resources that could otherwise support infrastructure and economic diversification.
For Nigeria, the lesson may therefore lie somewhere between the two experiences.
A sustainable energy policy must protect consumers from excessive shocks without creating a system that drains public finances, encourages arbitrage or discourages investment in refining and alternative industries.
Ultimately, the success of Nigeria’s subsidy reform will depend not only on the decision to remove the subsidy, but on whether the resulting fiscal space is transparently converted into productive investment, targeted social protection, efficient infrastructure and lower economic costs for ordinary Nigerians.
That is where the subsidy debate moves beyond the price at the filling station to a larger question: how should an oil-producing country convert its petroleum wealth into broad-based prosperity?
