Amid escalating tensions in the Iran-US-Israel conflict driving oil prices higher, experts predict a silver lining for Nigeria’s economy, suggesting that the surge could strengthen the country’s fiscal and external balances in the short term, offering much-needed relief to Africa’s largest oil producer.
BusinessDay check showed that brent crude, the global benchmark for oil prices rose to $82 a barrel on Monday as Iran continues to launch strikes across the Middle East in response to ongoing attacks by the US and Israel.
Commenting the impact of this conflict on Nigeria’s economy, Muda Yusuf, Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE) said that the higher oil prices strengthen Nigeria’s fiscal balance, improve foreign exchange liquidity as well as reduce short-term pressure on the naira.
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Noting that in recent years, exchange rate stability has been closely tied to oil receipts and capital inflows, he said that improved export earnings could boost gross external reserves, and enhance FX market liquidity.
He however, emphasised that the geopolitical instability could also triggers global risk aversion, stating that during periods of uncertainty, capital tends to migrate toward safe-haven assets such as US Treasury securities and gold.
“Given Nigeria’s relatively shallow capital market and sensitivity to foreign portfolio investment, volatility in global financial conditions could offset part of the FX gains from higher oil prices. The net exchange rate impact will therefore depend on the balance between stronger oil inflows and potential capital reversals.
“The Iran–U.S.–Israel conflict represents a classic double-edged shock for Nigeria. Higher oil prices may strengthen fiscal and external balances in the short term. However, inflationary pressures, welfare deterioration, capital flow volatility, and global growth risks pose significant countervailing threats.
“The ultimate impact will depend less on external events and more on domestic policy discipline. Strategic savings, production efficiency, macroeconomic prudence, and structural diversification will determine whether Nigeria converts geopolitical turbulence into macroeconomic resilience,” Yusuf said.
Yusuf also explained that Nigeria’s fiscal history demonstrates that oil windfalls often lead to expenditure expansion during price booms, followed by fiscal stress when prices normalize.
For him, the current situation presents an opportunity for disciplined fiscal consolidation, requiring priority actions which include: saving part of any oil windfall in stabilization mechanisms, reducing fiscal deficits, moderating public debt accumulation and prioritising capital expenditure over recurrent spending.
“Without prudent management, temporary revenue gains could encourage unsustainable spending patterns, increasing vulnerability when oil prices eventually decline.
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He also explained that the most immediate domestic risk lies in inflation transmission. Nigeria operates a deregulated downstream petroleum regime. Higher international crude prices feed directly into higher petrol, diesel and aviation fuel costs. The likely channels include: Rising pump prices, increased transportation/logistics costs, higher food distribution expenses, escalating manufacturing and logistics costs.
“Energy costs have a strong multiplier effect in Nigeria’s inflation dynamics. Transportation and food prices account for a significant share of consumer expenditure.
“With purchasing power already fragile, sustained increases in fuel prices could intensify cost-of-living pressures and deepen poverty levels. Thus, while government revenues may rise, household welfare could deteriorate—creating a divergence between fiscal gains and social outcomes,” he added.
