Victor Ezeja
The Centre for Promotion of Private Enterprise (CPPE), has highlighted how the outbreak of war between Israel and Iran would affect Nigerian businesses and the economy generally.
Join our WhatsApp ChannelThe conflict, which started with Israel launching attacks on Iran’s nuclear sites last week, has escalated with a retaliation from Iran, heightening instability in the Middle East.
There are concerns that the already stumbling global economy would be adversely impacted by this new wave of geopolitical crisis in the Middle East.
“Economies around the world are currently grappling with elevated geopolitical tension triggered by the Russian Ukraine war and the Israel-Hamas conflict. There is also the profound uncertainty created by the unprecedented tariff disruptions by the trump administration,” CPPE stated in a statement signed by the CEO, Dr Muda Yusuf.
Centre posited that for the Nigerian economy, the implications are mixed. While Nigeria, just like other oil-producing nations, benefits from the increase in crude oil prices due to the conflict, the West African country would grapple with a surge in energy costs.
Prime Business Africa reports that crude oil prices have recorded a 15 per cent jump in the last few days from $65 per barrel to $75 per barrel in the international market.
This development has obvious implications for petroleum product prices across the world. Prices of petroleum products are mostly influenced by the price of crude oil on the international market.
“A major driver of energy prices in Nigeria is the global crude oil price,” CPPE noted, adding that “Economies around the world [Nigeria inclusive], would witness a surge in the price of petrol, diesel, jet fuel, gas and related products in the near term.”
The economic think tank observed that it would have a significant implication on inflation in Nigeria, as energy cost is a major factor driving it. It impacts production cost, logistics cost, transportation costs, and the cost of power generation, it noted.
The Centre further stated that a high inflation rate could force monetary authorities to respond with another monetary policy tightening regime, leading to an increase in interest rates, which affects businesses.
“The expectation is that economies around the world may experience renewed pressures on interest rate. Higher global interests could adversely impact portfolio flows with implications for foreign reserves,” CPPE stated.
“High energy cost, elevated inflationary pressures, and a spike in interest rates are all headwinds that could undermine the profitability of businesses in the economy.”
The Centre expressed concerns that the situation would likely make investors in the non-oil sector more vulnerable.
“Nigerian firms with strong business links in the Middle East and those with strong supply chain linkages in the region would be vulnerable at this time because of the current instability in the region,” it highlighted.
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It also observed that the increase in revenue from oil could lead to an increase in money supply in the Nigerian economy, which poses additional risks to inflationary pressure and exchange rate depreciation. “This may provoke a tighter monetary policy stance, which could result in difficult credit conditions for businesses in the economy,” the centre warned.
Reflecting on the upsides for the Nigerian economy, the Centre said that if the current Israeli-Iran conflict persists and escalates, the Nigerian economy may record a surge in foreign exchange earnings due to a spike in crude oil prices. “This development would also positively impact the country’s foreign reserves, ensure better forex liquidity and ultimately the stability of the naira exchange rate.”
While noting that the oil sector currently accounts for about 50 per cent of Nigerian government revenue, it said that the development could lead to an increase in revenue, which would have a positive impact on “fiscal consolidation and hopefully moderate the growth of the fiscal deficit.
“Investments in the oil and gas sector would post better returns if the conflict persists. High oil price is good news for upstream oil and gas investors,” it added.
Victor Ezeja is a passionate journalist with seven years of experience writing on economy, politics and energy. He holds a Master's degree in Mass Communication.
