The price hike follows President Olesugun Obasanjo's decision on June 19 to slash the government subsidy on domestic fuel prices. Obasanjo said the hike was irreversible as the government could no longer subsidise fuel prices on which it already spends about 250 billion naira (1.95 billion dollars) annually.
The decision came after the government admitted it couldn't afford the maintenance of its four aging domestic oil refineries, currently operating at just over half capacity. The government has spent $US700 million over the past four years on refurbishing the plants yet the result has been that the average capacity utilisation is of the order of 53% at best.
Due to mismanagement and neglect during the 15 years of military rule that ended in 1999, the refineries have been unable to meet rising domestic demand for fuel, despite the fact the country is the world's eighth largest oil exporter. As a result the government has been forced to import large quantities of petrol through state-run Nigerian National Petroleum Corp (NNPC), which owns the refineries.
As a result the government has cut the subsidy which has sparked a unanimous public outcry in the poverty striken nation and given unions the confidence to shut down the economy.
If the strike does eventuate it could also have a significant impact on world oil markets, which are already nervous over a spate of attacks on oil facilities in US-occupied Iraq.
With Venezuela only recently reaching full production after its own national strike and Iraq a long way from full production, world producers could struggle to cover Nigeria's production levels of two million barrels per day.
In addition to the international implications the strike could also have a crippling effect on the Nigerian economy which relies on crude oil exports for 96% of foreign revenue.
The Nigerian oil industry has come under increasing international scrutiny this year as several major international companies reconsider their investments in the prolific Niger delta after continued sectarian violence.
TotalFinaElf was forced to declared force majeur on Nigerian production earlier this year due to concerns over employee safety, while hundreds of workers were also taken hostage on four offshore Transocean rigs for several weeks.
Persistent threats forced Shell to take the extraordinary step of placing a full page advertisement in the Nigerian press warning criminal elements that it was aware of plans to attack its Sea Eagle FPSO located in the EA Field.
For a period ChevronTexaco was also forced to shut down its 140,000bopd of oil production facility and declared force majeure on its oil exports because of the ethnic violence.
The national strike may be the last straw for several companies who can no longer justify the risk of exploration and production in the region, which could spell financial ruin for Nigeria and bring about a new period of political instability in Africa's most populous nation.
