The world is currently witnessing a series of geopolitical shifts that threaten to reshape the global economic landscape. Central to these shifts is the escalating tension between Israel and Iran, a conflict with far-reaching implications. SAMI TUNJI explains how the Israel-Iran conflict could influence Nigeria’s economy, drawing from current economic factors and the ongoing global uncertainty.
In its April 2025 World Economic Outlook report, the International Monetary Fund projected that Nigeria’s headline inflation will rise sharply to 37 per cent in 2026. According to the Fund, inflation, which averaged 33.2 per cent in 2024, is expected to moderate slightly to 26.5 per cent in 2025 before surging to 37 per cent the following year. The IMF report also downgraded Nigeria’s economic growth forecast for 2025, citing weakening global oil prices as a major risk to the country’s fiscal and external balances. It revised its 2025 GDP growth forecast for Nigeria downward by 0.2 percentage points to 3.0 per cent, down from 3.2 per cent. Growth for 2026 was also revised downward by 0.3 percentage points to 2.7 per cent. It noted that Nigeria, like many oil-exporting countries in Sub-Saharan Africa, remained highly vulnerable to external shocks, which continue to affect government revenue, trade balances, and investor sentiment. The projection, however, has drawn mixed reactions from economists, some of whom described the outlook as excessively pessimistic and detached from domestic policy realities.
Despite the opposition to this projection, the risk remains. The escalating conflict between Israel and Iran has triggered ripple effects across the globe, and Nigeria, as a major oil exporter, stands at the forefront of these economic reverberations. Though geographically distant, the consequences of this war have global repercussions, with Nigeria, Africa’s largest economy and a major oil exporter, facing both opportunities and risks.
While Nigeria may benefit from higher oil prices in the short term, this advantage is complicated by structural weaknesses in the economy and regional security risks. The Director/Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Muda Yusuf, affirmed that the Nigerian economy, like many others, is bracing for both risks and potential benefits as a result of the conflict.
Surge in oil prices as a double-edged sword for Nigeria
The most immediate impact of the Israel-Iran conflict has been the surge in global oil prices, which jumped over four per cent in the initial days following the escalation. Brent crude prices increased from $69 to $74 per barrel, offering a temporary windfall for oil-dependent economies like Nigeria. Also, The PUNCH earlier reported that Nigeria’s major crude grades, Bonny Light, Brass River, and Qua Iboe, rose above $77 per barrel and sustained the rise, following Israel’s military strikes on Iran, heightening fears of a wider Middle East conflict. According to recent data from Oilprice.com, Bonny Light surged to $78.62 per barrel, while Brass River and Qua Iboe closed at $77.09 and $77.14, respectively. The rally marked a sharp jump from the average of $65 per barrel recorded just days earlier. While this may seem like good news for Nigeria, the benefits come with considerable limitations.
Nigeria’s 2025 national budget is based on an oil price benchmark of $75 per barrel, meaning that any price increase above this threshold would theoretically provide extra revenue. However, Nigeria’s current oil production, hovering around 1.5 million barrels per day, remains far below its full production capacity of nearly two million bpd. As a result, the country is unable to take full advantage of the higher global prices. Moreover, a significant portion of Nigeria’s crude oil exports is tied up in long-term contracts with fixed prices, diluting the potential gains from the price surge.
This situation is reminiscent of past episodes when Nigeria faced rising oil prices but struggled to translate them into substantial economic benefits. During the 2022 Ukraine war, for example, oil prices spiked to over $100 per barrel, yet Nigeria’s inflation rate was on the rise, and the country’s economic challenges persisted.
In a new report, SB Morgen noted, “For Nigeria, this price hike provides a volatile windfall, theoretically boosting national revenue and easing pressing fiscal pressures. However, Nigeria’s ability to capitalise on this is severely limited by its soft oil production.”
While the current oil price rise offers some fiscal relief, it is unlikely to solve the underlying structural challenges faced by the Nigerian economy. These challenges include poor oil production capacity, inadequate infrastructure, and over-reliance on oil exports. Despite any immediate benefits, Nigeria’s economy remains susceptible to the cyclical nature of global oil prices, and the government’s ability to manage this volatility remains in question.
Inflationary pressures to persist
Rising oil prices are not only an opportunity for Nigeria to boost revenues but also a potential source of economic instability. In Nigeria, where the removal of fuel subsidies has already put immense pressure on household budgets, any additional spike in fuel prices could exacerbate inflation, leading to even higher costs for food, power, and transportation. Energy analysts warned that higher crude prices could trigger an increase in local fuel prices, as refiners face rising costs for crude, the primary feedstock for petrol and diesel production. Already, depots have hiked the pump prices of Premium Motor Spirit (petrol) after the escalating tension in the Middle East jerked up the prices of crude oil.
Energy costs are a primary driver of inflation in Nigeria. When fuel prices rise, the costs of transporting goods, running power generators, and even basic food production increase, pushing up the prices of essential goods and services. This has a direct impact on the average Nigerian consumer, whose purchasing power is eroded by rising prices.
In addition to domestic inflationary pressures, Nigeria is also facing the challenge of imported inflation. As a major importer of refined petroleum products, the country is particularly vulnerable to fluctuations in global energy prices. This means that even if Nigeria’s oil revenues rise, the country’s dependence on imported fuel could cancel out some of the potential benefits. The Nigerian government’s recent decision to remove fuel subsidies further exacerbates the situation, leaving the public to bear the brunt of the rising costs.
The SBM report noted, “Despite being a major crude exporter, Nigeria remains dependent on imports for refined petroleum products. Consequently, rising global oil prices increase the cost of imported fuel and the reference rate for domestically refined products, translating into higher pump prices.
“These increases ripple through the economy, pushing up transport, food, and power costs, which could trigger further inflationary surges in a country already under considerable economic strain following the removal of fuel subsidies.”
Commenting on the issue, Yusuf said, “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. This would have far-reaching implications for many economies and businesses.”
Rising energy prices are not just a local issue; they are expected to fuel global inflationary pressures as well. According to Yusuf, this could result in “imported inflation”, which will further strain Nigeria’s already precarious economic conditions. As inflation rises, central banks across the globe, including Nigeria’s, are likely to adopt tighter monetary policies. Yusuf warned that this could lead to an increase in interest rates.
“High inflation drives interest rates as monetary authorities respond to the inflation outcomes of current geopolitical headwinds. A tighter monetary policy regime is expected in Nigeria and other monetary jurisdictions,” Yusuf said.
He added that the increased cost of borrowing could also place additional strain on businesses, further eroding profitability, especially in sectors already reeling from high energy costs and inflation. The rising energy costs, inflationary pressures, and interest rate hikes create an environment where businesses may struggle to maintain profit margins.
Geopolitical risks and security concerns
Beyond the immediate economic implications of rising oil prices, the Israel-Iran conflict presents significant geopolitical risks for Nigeria and the broader West African region. Nigeria’s diplomatic position is particularly delicate, as it must balance its relationships with both Western powers and key trade partners in the Middle East, including Iran.
Nigeria’s foreign policy stance has been one of cautious neutrality. The Ministry of Foreign Affairs has urged both Israel and Iran to exercise restraint and avoid further escalation, highlighting the country’s preference for diplomatic solutions. However, this cautious approach masks the complexity of Nigeria’s geopolitical realities.
On the security risk, SBM stated in its report, “The conflict threatens to fuel renewed jihadist momentum across the Sahel. Extremist groups like Boko Haram, ISWAP, and AQIM could find fresh ideological fuel if the conflict is framed in anti-Western terms, serving as a powerful recruitment tool for disaffected populations.
“A wider Middle East war would also likely accelerate the withdrawal of Western security partners from the region, as resources and attention pivot elsewhere. This resulting vacuum could embolden jihadist factions, allowing them to expand their territorial control and strike with greater impunity.”
Managing Nigeria’s external vulnerability
The Israel-Iran conflict presents Nigeria with a complex array of economic and geopolitical challenges. Despite the many risks, Yusuf also highlighted several potential upsides for Nigeria. The surge in crude oil prices is expected to boost the country’s foreign exchange earnings, which would improve forex liquidity and support the naira’s stability. Also, Nigeria’s oil sector, which accounts for approximately 50 per cent of government revenue, stands to benefit significantly from the rising oil prices. However, with the likely increase in oil revenue, Yusuf cautioned that Nigeria could face an increase in money supply. This could exacerbate inflationary risks and place additional downward pressure on the naira.
In the face of these challenges, Nigeria must prioritise long-term structural reforms, improve its oil production capacity, and diversify its economy. The IMF earlier warned the Federal Government to remain vigilant in the face of mounting global trade tensions and tightening financial conditions, cautioning that Nigeria’s earnings from commodity exports could decline significantly if global demand weakens.
Speaking at a Financial Stability Report press briefing, the Assistant Director in the IMF’s Monetary and Capital Markets Department, Jason Wu, acknowledged that Nigeria’s macroeconomic indicators had shown some resilience in recent months, supported by ongoing reforms and an improved policy framework. Despite the progress, Wu cautioned that Nigeria remains exposed to external vulnerabilities, especially as global financial markets face heightened uncertainty and investor risk appetite weakens. He stressed that the country’s heavy reliance on commodity exports made it particularly vulnerable to trade disruptions and geopolitical developments that affect global demand for oil and gas.
The country’s ability to manage the immediate economic fallout while preparing for the long-term implications of regional instability will determine its trajectory in the coming years.
