Oil Subsidy and Poverty Reduction in Nigeria: An Empirical Assessment of Economic and Social Implications

Abstract

This study interrogates the complex relationship between oil subsidy policies, poverty dynamics, and economic development in Nigeria within the broader context of resource governance and social welfare. For decades, fuel subsidies have been positioned as a redistributive mechanism intended to cushion the effects of energy price volatility on citizens, particularly the poor. However, recent policy shifts, most notably the removal of fuel subsidies in 2023, have exposed underlying structural contradictions in the Nigerian economy. Drawing on secondary data from national and international sources, as well as contemporary empirical literature (2022-2025), this study adopts a descriptive and analytical approach to examine how subsidy regimes influence poverty levels, inflation, and household welfare. The analysis reveals that while subsidies historically provided short-term relief through reduced transportation and energy costs, their long-term impact has been limited by inefficiency, fiscal leakage, and regressive benefit distribution. Conversely, subsidy removal has generated immediate macroeconomic adjustments, including sharp increases in fuel prices, rising inflation, and declining real incomes, thereby intensifying poverty and economic vulnerability, particularly among urban and informal sector populations. The findings suggest that neither subsidy retention nor abrupt removal, in isolation, offers a sustainable pathway to poverty reduction. Rather, the effectiveness of subsidy reform depends on the presence of strong institutional frameworks, targeted social protection mechanisms, and transparent reinvestment of public savings. The study concludes by advocating for a balanced policy approach that prioritizes human development, equity, and long-term economic resilience.