Nigerian oil workers threatened on Wednesday to shut down output in Africa's top crude producer, deepening a national strike over a more than doubling of petrol prices.

With the government and unions locked in a showdown which has paralysed Nigeria for three days, the biggest oil union said it would make a decision later in the day, although industry officials doubted it could shut down crude exports completely.

We are not on the streets today because by the evening ... the national leadership of the oil workers will announce its decision on when to shut down production as well as export terminals, Chika Onuegbu, national industrial relations officer of oil union PENGASSAN, told Reuters.

A definite decision to strike had yet to be made, but he added: That will mark the beginning of the next phase of the protest against the removal of fuel subsidy and it will be very disastrous for the country.

Nigeria exports over 2 million barrels of crude oil per day and is a major supplier to the United States and Europe. Output has been unaffected so far but concerns about Nigerian supply can move global oil prices.

Oil industry officials said a complete halt to oil exports was unlikely because processes are automated and some workers non-unionised. However, even a small dent in output would heap pressure on President Goodluck Jonathan's government, which relies on crude exports for 95 percent of Nigeria's foreign exchange earnings and most of its state revenue.

Tens of thousands of Nigerians gathered across the country of 160 million people in protests that have focused anger about decades of corruption and economic mismanagement.

Workers vowed to keep up the indefinite strike unless the government restored a fuel subsidy it scrapped on January 1, but Jonathan's government said it would withhold pay from civil servants who join it.

Economists say the subsidy would soon have bankrupted the country. But its removal more than doubled the petrol price to 150 naira ($0.93) a litre, depriving Nigerians of what many regarded as their only welfare benefit.

At a rally in the commercial capital Lagos, protesters sang and chanted slogans urging the government to go after corrupt leaders, not state welfare.

Police shot one demonstrator when they fired on a group they accused of rioting, a Reuters reporter saw. Protests have mostly been peaceful, but deadly confrontations with police have happened in Lagos and the second largest city, Kano.

In Lagos on Wednesday, youths at flaming roadblocks tried to prevent cars moving, groups of protesters marched and waved flags and a few hand-to-mouth traders sold fruit juice or mobile phone credit, their only means of survival.

Protesters marched through the capital, Abuja, and thousands gathered in Kano, in the north.

Onuegbu said the only option was for the government to restore the subsidy to create room for discussion.

SHUTDOWN

Banks, restaurants and shops were shuttered up, evidence that the strike is already badly damaging the economy, in which most people live on less than $2 per day.

But none of the damage done so far would match a shutdown of oil exports. The strike has not affected oil output yet, industry officials say, though the offices of companies such as Shell and Exxon Mobil are shut.

The strikes risk creating shortages of basic goods.

I have stocks lasting a week but I'm running out of supplies, said David Negedu, 32, a financial analyst in the middle class Lekki neighbourhood, who supports the strike. You want to get back to work, but yet again we want this action ... until the government comes up with a plan that makes sense.

President Jonathan now has two major security problems - opposition to the fuel price rise and growing sectarian strife started by the Islamist militant group Boko Haram.

Jonathan has stood firm on removing the subsidy in a nation which despite being a top crude producer has to import many of its oil products due to a shortage of refining capacity - partly because cheap fuel prices have discouraged investment.

VIOLENCE FLARES

Scores of passengers were stranded by cancelled flights at Lagos international airport, many of them sleeping on the floor as they waited in vain for airlines to resume services.

It's the population that is suffering the most from this strike, said an African diplomat in Lagos. I think the government and labour will have to come to a compromise where both will shift their ground just to end it.

There was no sign of that on Wednesday. The Jonathan presidency must wake up to the reality that Nigerians ... have spoken out across the country against the fuel price hike and it will do well to listen, the unions said in a statement.

Jonathan has been unwilling to yield to protests similar to those that derailed past attempts to scrap the subsidy, and the attorney general said late on Tuesday that striking public sector workers would not be paid.

The government estimates it will save 1 trillion naira ($6 billion) this year by eliminating the subsidy, freeing up money for roads, railways and poverty alleviation.

Around three thousand demonstrators from Jonathan's Ijaw ethnic group held a pro-government counter-rally in the southeastern oil city of Yenagoa

Some protests have turned violent. A mob killed five people in an attack on a mosque in southern Nigeria on Tuesday, taking advantage of the civil disorder to settle sectarian scores and highlighting the nation's worsening fragility.

Police shot dead two people and wounded at least two dozen during protests on Monday.

Suspected Boko Haram members on motorbikes opened fire on a bar in the northeastern town of Potiskum on Tuesday, killing eight people, the local police commissioner said, one policeman and seven civilians, including one woman.

Jonathan has been criticised for failing to quell Boko Haram, whose insurgency is rooted in the largely Muslim north but which is increasingly targeting Christians from the south --

most recently in attacks on churches that have killed dozens and provoked reprisals against Muslims.

(Additional reporting by Joe Brock, Camillus Eboh and Felix Onuah in Abuja, Tim Cocks in Lagos, Mike Oboh in Kano, Owen Segun and Tife Owolabi in Yenagoa; Writing by Tim Cocks; editing by David Stamp)