By Olaitan Ibrahim
Crude oil prices surged by 8.8% on Sunday, rising to $74 per barrel from $68, amid escalating tensions between Israel and Iran.
The price rally is expected to continue if Iran follows through on its threat to block the Strait of Hormuz—a vital shipping lane that facilitates over 20% of global oil and gas trade.
Maritime sources have warned that any attempt by Iran to obstruct the Strait would severely disrupt international trade and energy markets.
In a projection of potential impacts, global financial powerhouse JP Morgan has maintained a base-case oil price forecast of over $60 per barrel for 2025. However, in the event of a worst-case scenario—such as a full-blown military conflict or a closure of the Strait—prices could spike to between $120 and $130 per barrel.
Implications for Nigeria
Speaking on the potential implications of the Israeli-Iran conflict on the Nigerian economy, Dr. Muda Yusuf, Director and CEO of the Centre for the Promotion of Private Enterprise (CPPE), noted that the crisis introduces a troubling new dimension to an already fragile global economy.
“For Nigeria, the implications are mixed. While the situation presents several risks, there are also potential upsides,” Yusuf explained.
He noted that Nigeria’s energy pricing is directly influenced by international crude oil prices. “Since the outbreak of hostilities, crude prices have surged from $65 to $75 per barrel—a 15% increase in just a few days.
This spike will likely lead to higher prices for petroleum products such as petrol, diesel, jet fuel, and gas globally, with significant consequences for households, businesses, and national inflation.”
Yusuf emphasised that energy costs are a critical factor in Nigeria’s inflation dynamics. “Higher energy prices affect production, logistics, transportation, and power generation. These increased costs will eventually be passed on to consumers, depending on the elasticity of demand,” he said.
He also highlighted the risk of imported inflation: “Global energy price hikes have inflationary consequences worldwide. Therefore, Nigeria could experience additional inflationary pressures from this external shock.”
According to Yusuf, high inflation could prompt central banks—including Nigeria’s monetary authorities—to tighten policy and raise interest rates.
“Tighter monetary policy will increase the cost of credit, affecting investment and economic growth. Non-oil sector businesses and those with trade or supply chain links to the Middle East may be especially vulnerable,” he said.
He warned that increased oil revenues could lead to higher money supply through the monetisation of oil receipts—potentially driving inflation and exchange rate depreciation further.
“This might compel the Central Bank of Nigeria to adopt even stricter monetary measures, thereby worsening credit conditions for businesses,” Yusuf noted.
He also observed that global stock markets are reacting negatively to the conflict, with indices like the Dow Jones, S&P 500, and Nasdaq trending downward amid rising uncertainty.
“Investors are shifting towards safe-haven assets. However, in Nigeria, we historically observe a positive correlation between rising oil prices, GDP growth, and stock market performance. This may favourably influence the Nigerian stock market in the short term,” he added.
Despite the risks, Yusuf outlined potential economic benefits if the conflict persists and oil prices remain elevated.
“The surge in oil prices could boost Nigeria’s foreign exchange earnings, given that crude remains the country’s top forex earner. If production levels also improve, we could see stronger foreign reserves, enhanced liquidity in the forex market, and greater exchange rate stability,” he said.
He further noted that with the oil sector accounting for about 50% of government revenue, the fiscal outlook could also improve. “Higher oil prices would enhance government revenue, support fiscal consolidation, and potentially reduce the fiscal deficit,” he said.
“Additionally, sustained high oil prices would benefit upstream oil and gas investors, making the sector more attractive for investment,” Yusuf concluded.