International Journal of Economics and Financial Research ISSN(e): 2411-9407, ISSN(p): 2413-8533 Vol. 2, No. 2, pp: 33-40, 2016 URL: http://arpgweb.com/?ic=journal&journal=5&info=aims *Corresponding Author 33 Academic Research Publishing Group Impact of Oil Price Volatility on Macroeconomic Variables and Sustainable Development in Nigeria Eneji Mathias Agri * Department of Economics, University of Jos; China-Africa Science and Technology Foundation, Beijing Mai-Lafia Dimis Inusa Department of Economics, University of Jos, Nigeria Nnandi Drenkat Kennedy Department of Economics Education, University of Jos, Nigeria 1. Introduction Nigeria is an open economy that has no real influence on the world price of oil, whereas, it is greatly impacted by the effect of global oil price volatility as an importer of refined petroleum products. The prices of petroleum products have been increased for about thirteen occasions between 1974 and 2002 from 16.8 kobo to N26 per litter. The effect of oil prices on the macro-economic variables has been the subject of many studies. Most of these studies are concerned with the developed economies while few have recently showed concern with the developing country. Nigeria is faced with a more complicated situation in the sense that it sells its crude oil to foreign refiners, in which a general agreement on price set of exchange is reached beyond her control. After the oil is refined into premium spirit, gasoline, and kerosene, it is sold back to Nigeria pegged to the price of wholesale gasoline on an exchange. The inability of Nigeria to refine most of her crude domestically place the country more on the importing side, making the macroeconomics extremely vulnerable to external oil price shocks. Oil price volatility is like an airborne disease which Nigeria cannot avoid; this is because it affects every aspect of the Nigerian economy. For example, when there is an increase in the price of fuel, transportation would increase for the core poor and small scale entrepreneurs. This leads to an increase in the cost of goods and services, employment becomes difficult, because employers would not want to employ since production costs are very high and employees would agitate for an increase in salaries and wages due to the increased cost of living. In addition to higher petrol prices, the costs of producing electricity from petrol-powered generators have been too high, with black market operators. The impact of oil price volatility on Nigeria’s economy is quite complicated to analyze because oil has been the life wire of all economic activities in Nigeria. Oriakhi and Osazel (2013) examined the consequences of oil price volatility on the growth of the Nigerian economy within the period 1970 to 2010. Using quarterly data and employing the VAR methodology. Their study finds that, of the six variables employed, oil price volatility impacted directly on real government expenditure, real exchange rate and real import, while impacting on real GDP, real money supply and inflation through other variables, notably real government expenditure. This implies that oil price changes determine government expenditure level, which in turn determines the growth of the Nigerian economy. Total dependence of Nigeria on oil production for income generation obviously has serious implications for the economy. Since agriculture was abandoned for oil, oil became the major source of Nigeria’s revenue and it was expected to bring about substantial economic growth and development. However, there have been series of fluctuations in oil price since the last four decades, thereby hampering the macro-economic objectives of Nigeria, (CBN, 2008). There is no doubt that the total dependence on oil, its attendant corruption and constant volatility in oil price are the major causes Abstract: The main objective of this study is to determine the impact of oil price volatility on macroeconomic variables and sustainable development in Nigeria. The significant role of oil in the Nigerian economy cannot be overestimated. Though there are studies by other researchers on oil prices and macroeconomic variables, their findings are contentious and country-specific. Our literature review and methodology shade lights on these positions. We used secondary time series data in a vector auto regression analysis. We found that fluctuations in oil prices do substantially affect the real GDP, exchange rates, Unemployment, Balance of payments and interest rates in Nigeria. Negative shocks in the international oil market, have significant impact on price fluctuations. Due to increased imports in the Nigerian economy, inflationary pressures are inevitable and are pronounced. Government revenues and expenditures have decreased significantly. We recommend diversification of the economy and energy sources for sustainable development in Nigeria. Keywords: Exchange rates; Unemployment; Inflation; Balance of payments; Real GDP; Government revenue; Sustainable development.