Aramco’s template for crude oil pricing is the circular flow of income made visible in oil and steel.
The implementation of this template in Saudi Arabia is driven through two loops that feed each other. In the first loop, Aramco sells crude to the world at the international price. Every month it sets an Official Selling Price tied to benchmarks like Oman-Dubai for Asia and Brent for the Atlantic basin. Those cargoes bring in dollars, fill the treasury, pay dividends, and fund the Saudi budget. That is the revenue engine.
In the second loop, Aramco turns inward. It supplies every refinery, petrochemical plant, and power station inside Saudi Arabia with crude at a government-set price that is deliberately far below the export rate. This is not a mistake or a giveaway. It is policy. Cheap feedstock makes electricity affordable in the summer, makes gasoline and diesel cheap for transport, and makes plastics, fertilizers, and metals cheap to produce.
When energy is cheap, factories expand, people spend, wages rise, and the government collects more tax. More economic activity means more demand for energy, and Aramco is there to meet it. The dollars earned abroad pay for the discount at home, and the growth at home creates the need for more exports abroad. Production becomes income, income becomes spending, spending becomes more production. The circle closes. (Circular flow of income).
Nigeria’s experience has run in the opposite direction, and that is why the circle keeps leaking. We also have a national oil company and we also export millions of barrels. But for decades we insisted that crude sold to domestic refineries, including the Dangote Refinery, must be priced at export parity plus freight, insurance, and financing. In effect we took our own oil, priced it as if it were already on a tanker to Rotterdam, and then sold it to ourselves. (Economic madness and poor understanding of economics).
The consequence was predictable. Our refineries could not compete because their single biggest input was priced at world levels. We then turned around and imported refined petrol, diesel, and jet fuel at world prices plus shipping and trader margins. So the dollars we earned from crude did not circulate to power Nigerian factories. They left again to pay for imported products. We earned from crude, and spent on products, and were left with inflation, unemployment, and an industrial base that runs on expensive diesel generators. The income never came back to complete the circle.
Saudi Arabia shows a different path, and Nigeria should adapt it. The goal is not to subsidise consumption blindly, but to treat domestic crude as a strategic input. That means obliging producers to supply a share of Nigeria’s crude to licensed local refineries at a formula price based on cost plus a reasonable margin, not at full export parity. It means letting the discount be seen for what it is: an investment in manufacturing, not a loss.
When refineries get cheaper feedstock, they can produce PMS and diesel at a cost that allows Nigerian trucking, agriculture, and manufacturing to compete. When gas and power plants get affordable feedstock, electricity becomes cheaper and more stable. Cheaper energy lowers the cost of everything else, businesses grow, more people are employed, and government revenue rises from taxes rather than only from oil sales. The foreign exchange we save by importing less fuel stays in the country to build pipelines, depots, and petrochemical plants. Export earnings fund domestic capacity, and domestic capacity reduces the import bill. The circle finally closes.
Aramco proves that you do not have to choose between earning from oil and developing with oil. You can do both by pricing them differently. For Nigeria, continuing to sell our crude to ourselves at the world price is like a farmer exporting all his maize and then buying garri at import cost. If we want industrialisation, we must first make Nigerian crude work for Nigerians. Adapt the Saudi model, not copy it wholesale, but borrow its core logic: use cheap, reliable domestic energy as the foundation, earn dollars abroad to fund it, and let the two loops reinforce each other. That is how oil wealth becomes factories, jobs, and a real economy. The bottom line to a successful implementation will ultimately be rested on a leadership that will drive a corrupt free and transparent process.
Dr Braimah is a senior lecturer in the Department of Political Science, Elizade University, Ilara-Mokin. Ondo State.
Gatekeepers News is not liable for opinions expressed in this article; they’re strictly the writer’s.
