Nigeria’s economy faces growing risks from the escalating conflict between Iran, the United States, and Israel, with higher oil prices, inflationary pressure, and potential capital flight among the main threats, a leading economic think-tank warned on Sunday.
In a policy brief, the Centre for the Promotion of Private Enterprise (CPPE) said the crisis, focused on the strategically vital Strait of Hormuz, has pushed global crude prices higher and heightened uncertainty in energy and financial markets.
“The conflict represents a double-edged shock for Nigeria,” the report said, noting that while rising oil prices could boost government revenues, higher fuel costs and inflation could erode household welfare.
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Nigeria, Africa’s largest crude exporter, relies on oil for more than 85 percent of export earnings and roughly half of government revenue. Historically, geopolitical flare-ups in the Middle East have driven crude prices up by $5–$15 per barrel within short periods.
Higher prices could bolster foreign exchange earnings, strengthen reserves, and increase allocations to governments across Nigeria’s federation, the CPPE said.
But analysts warned that the fiscal benefits are fragile. Nigeria’s crude output has hovered around 1.4–1.6 million barrels per day, well below capacity due to oil theft, pipeline vandalism, and underinvestment. Without stabilising production, Nigeria risks missing out on the full benefits of higher oil prices.
Inflationary Pressures Mount
Even as oil revenues rise, the report said higher global energy prices are already feeding through to domestic fuel costs. Under Nigeria’s deregulated petroleum pricing system, international crude gains quickly translate into higher petrol, diesel, and aviation fuel prices, pushing up transport and food costs — key components of consumer spending.
“With energy costs rising, food distribution and logistics costs will climb, pushing inflation higher and worsening living standards,” the CPPE warned.
Financial Market Volatility
The report also highlighted risks for Nigeria’s foreign exchange and capital markets. While improved oil receipts could ease pressure on the naira and boost foreign exchange liquidity, global risk aversion often drives investors toward safe-haven assets such as U.S. Treasury securities and gold, potentially triggering outflows from emerging markets like Nigeria.
“That volatility could offset some of the exchange-rate gains from higher oil receipts,” the CPPE said.
Equity markets are expected to see uneven effects, with energy and oil-linked stocks potentially benefiting, while sectors such as manufacturing, aviation, and logistics face rising input costs and compressed margins.
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Calls For Fiscal Discipline
The think-tank urged Nigeria’s policymakers to use any short-term gains wisely, recommending that windfall revenues be saved in stabilisation funds, fiscal deficits be reduced, and public debt growth moderated.
It also recommended accelerating domestic refining capacity and diversifying the economy away from oil dependence.
“Nigeria’s ultimate economic trajectory will hinge less on external events than on domestic policy discipline,” the CPPE concluded.
Prosper Okoye is a Correspondent and Research Writer at Prime Business Africa, a Nigerian journalist with experience in development reporting, public affairs, and policy-focused storytelling across Africa
