* Deadlock over removal of petrol subsidy
* Strikes hurt security as Boko Haram menace grows
* Strikers may be forced back due to lost wages-analyst
By Felix Onuah and Austin Ekeinde
ABUJA/PORT HARCOURT, Jan 11 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 was ready to halt oil production, although industry officials doubted it could shut down crude exports completely.
"Now that the Federal Government has decided to be callous minded, we hereby direct all production platforms to be on red alert in preparation for total production shutdown," Babatunde Ogun, president of oil union PENGASSAN, said in a statement.
A definite decision to halt output had yet to be made, but Ogun said workers were already not sending production reports back to the government, which was "one of the very first steps in shut down process".
In response, the government urged unions to negotiate.
"The government is worried about the threat to shut down oil production because if they go ahead to carry out their threat that action will worsen our economic problem which the government is trying to solve, this is why the government is calling on labour and the civil society to come for dialogue," Labaran Maku, minister of information, told Reuters.
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, although they were down on Wednesday as traders worried more about the European economy.
Oil industry officials said a complete halt to oil exports was unlikely because processes were 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.
"If there is any disruption to oil production it would be a serious escalation and the government would be likely to use legal or enforcement means to stop it. But I think it is unlikely oil output will be affected," said Kayode Akindele, partner at Lagos-based investment firm 46 Parallels.
"The government will be fairly confident that as long as the security services can keep things under control then people will have to start going back to work. Most people don't have savings so they can't afford to lose out on days of pay."
Tens of thousands of Nigerians have 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 Jan. 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 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.
Banks, restaurants and shops were shuttered up, evidence that the strike was 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.
Four people were shot dead at a petrol station in the northeast Nigerian town of Potiskum on Wednesday, where a day before suspected members of Boko Haram killed 8 people in a shooting at a bar, the local police said.
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.
He has stood firm on removing the subsidy in a nation which has to import many of its oil products due to a shortage of refining capacity - partly because cheap fuel prices have discouraged investment.
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.
Similar protests derailed past attempts to scrap the subsidy, but 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.
The subsidy distorted the local energy market with heavy duty vehicles running on petrol rather than diesel - a more appropriate fuel but which had been more expensive as it was not subsidised.
Around 3,000 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.