The eruption of armed conflict between Israel and Iran has intensified global economic uncertainty, adding to the ongoing pressures of the Russia-Ukraine war and the prolonged hostilities between Israel and Hamas.
Dr Muda Yusuf, Director of the Centre for the Promotion of Private Enterprise (CPPE), described the development as a complex mix of threats and openings for the Nigerian economy, which is heavily dependent on oil exports.
In a statement, Dr Yusuf observed that crude oil prices surged rapidly from 65 to 75 US dollars per barrel within days of the conflict’s onset, reflecting a 15 per cent jump. For Nigeria, he noted, this spike carries significant implications across several sectors.
One of the most immediate challenges is the expected rise in energy costs. “This surge will impact the prices of petrol, diesel, jet fuel and gas, which in turn will trigger a fresh wave of inflation,” Dr Yusuf explained.
As energy prices climb, knock-on effects are expected throughout the economy. Transportation costs will rise, manufacturing expenses will grow, and power generation will become more expensive. Consumers, already grappling with high living costs, are likely to face further hardship as inflation intensifies.
Dr Yusuf warned that the pressure from inflation could push monetary authorities, including the Central Bank of Nigeria, to adopt tighter interest rate policies. This may lead to reduced access to credit, a dampened appetite for investment, and an overall increase in borrowing costs.
Businesses outside the oil sector, he added, could be particularly exposed. A combination of rising input costs, fragile consumer demand and potential supply chain disruptions, particularly in links to the Middle East, could erode profitability across various industries.
He also flagged an inflationary risk tied to increased oil revenue. “As oil earnings rise and are monetised, we may see a growth in the money supply, which could accelerate inflation and further weaken the naira,” he cautioned.
Nonetheless, Dr Yusuf acknowledged that the crisis could deliver short-term advantages for Nigeria. Higher crude oil prices may strengthen foreign exchange inflows and bolster the country’s external reserves. This, in turn, could improve liquidity in the foreign exchange market and offer some stability to the naira.
Increased oil revenue may also improve the government’s fiscal position, as the petroleum sector contributes close to half of federal earnings. This could help reduce the budget deficit and support fiscal consolidation efforts.
In addition, Nigeria’s upstream oil and gas sector could become more attractive to investors seeking improved returns, potentially opening the door to new capital inflows and project developments.
On the global stage, markets are already feeling the strain. Key indices such as the Dow Jones, S&P 500 and Nasdaq have all trended downward, as investors seek refuge in safer assets, signalling a growing sense of caution.
However, Dr Yusuf noted a historical pattern where the Nigerian stock market tends to respond positively to increases in crude oil prices. “There could be some upside for the Nigerian equities market in the short term, despite the broader global unease,” he said.
As the Israel-Iran confrontation continues to unfold, the world economy remains on edge. Nigeria, like many nations, is bracing for further volatility. Policymakers, investors and business leaders are closely monitoring developments, hoping to steer through what may become another prolonged period of economic disruption.
