Abstract: Federal systems by their nature are complex administrative designs because they involve multiple levels of government. The Nigerian federal system is thus beset by a lot of complex challenges. One of such challenges is the seemingly implacable and intractable Niger Delta crisis arising from lopsidedness in revenue allocation and sharing in the country. From 1960 till date the revenue allocation system can neither be said to be efficient or equitable. However, the nature and conditions of the financial relations in any federal system are crucial to the continued existence of such a system. The study explores Nigeria’s fiscal relations and the revenue allocation formula through a descriptive historical analysis. It specifically focuses on the imbalance and lopsidedness associated with the systems which have combined to affect the Nigerian federal system as a whole. The study finds that the lack of sustainable development in the Niger Delta region is traceable to imbalances in the revenue allocation formula in Nigeria which gives little to the goose that lays the golden eggs. Data for the study came primarily from secondary sources. The study concludes that for there to be efficient sustainable development and to reduce the tension in the Niger Delta, the Nigerian government should encourage the derivation principle in her revenue allocation formula. This in a way will promote peace and development in an otherwise volatile region of the country.