This study examines the consequences of oil price volatility on the growth of the Nigerian economy within the period 1970 to 2010. Using quaterly data and employing the VAR methodology, the 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 determines government expenditure level, which in turn determines the growth of the Nigerian economy. This result seems to reflect the dominant role of government in Nigeria. Considering the destabilizing effects of oil price fluctuations on economic activity and government spending in Nigeria, the study makes some recommendations. Some of these include; fiscal prudence, reform in budgetary operations, export diversification, revival of the non-oil sector of the economy, accountability and corporate governance.