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Oil plays a crucial role in the world economy. Inspite of noticeable inclinations to alternative renewable natural sources like wind, water, nuclear and solar power, the role of crude oil in macroeconomic movements has not waned yet (Mohammad and Ehsan, 2014). Nigeria is an oil producing country and the largest oil producer in Africa; also holds the 6th position among OPEC membership (Abubakar and Umar, 2013). The impact of crude oil on Nigerian economy has been double-edged. It has benefitted the country in some ways, and has in many other ways turned out to be a curse (Ogwumike and Ogunleye, 2008). For instance, the oil industry has risen to the commanding height of the Nigerian economy, contributing the lion share to Gross Demostic Product and accounting for the bulk of Federal Government revenue and foreign exchange earnings since early 1970 (Adenikinju, 2006). Conversely, the structure of the economy has been mal-altered with the advent of oil. Despite oil boom, the private sector remained weak. The existing macroeconomic policies continued to encourage consumption rather than production. Also, according to Adenikinju (2006), the legacy of oil has also imposed significant costs on the Nigerian economy such as: Price distortions, Volatilities, Dutch-disease, Corruption and inefficiencies. A major feature of the sector is the dominance of the government in pricing, supply and investment.
However, before the discovery of crude oil in Nigeria, agriculture plays a dominant role in in Nigeria’s economy in terms of contribution to GDP and foreign exchange earnings (Kwanashie, Ajilima and Garba, 1998). It employed the services of over 75% of her labour force and constituted the major source of foreign exchange earnings, besides ensuring self-sufficiency in internal food supply and vital agricultural raw materials for the growing industries (CBN, 2003). Recently, however, there has been a continous decrease in the contribution of agriculture to the country’s GDP. The neglect suffered by the agricultural sector as a result of its displacement by crude oil as a major revenue earner for the country resulted in the gradual decline of crops and livestock production to the point where Nigeria, a hitherto net exporter of agricultural commodities, had to import these products to meet her domestic needs. The indications of problems in agriculture were clearly evident from increasing food supply shortfalls, the rising cost of food processing and delivery, and low foreign exchange earnings from agricultural exports (CBN, 2003).
The Nigerian economy over the years has been programmed to revolve around the supply of cheap petroleum products. An average household in Nigeria depends on subsidized by-products of crude oil such as petrol and kerosene for domestic and commercial use. This dependence is not helped either as public electricity supply from power holding company (PHCN) is epileptic. Almost every home and business is powered by generators through subsidized petrol. The few small scale business such as hotels, barbers, welders, farmers, hair dressers, pepper sellers, private and government hospitals etc., all rely on subsidized fuel. Gasoline, Premium Motor Spirit (PMS) or fuel as it is normally called in Nigeria is the second most used product after food in Nigeria. Whenever the price of fuel goes up, other sectors of the economy are affected. This is because transport cost for providing essential services goes up and it creates multiplier effect in the economy, the ripples are felt even up to the rural areas. The movement of agricultural product from one place to another depends on the transport sub-sector; causing a raise in the prices of product and services in the society, especially in the market. Key component of basic needs indicators such as food, housing, clothing and health will be affected, as access to them becomes costly. Nigeria having an average of 53.2 years as life expectancy and world ranking life expectancy of 175 according to WHO (2011), with the removal of fuel subsidy, life expectancy may be reduced due to high cost of health services, transportation and even food requirement of the people.