Iran–U.S.–Israel Conflict Offers Nigeria Oil Revenue Boost — CPPE

…….Warns Of Inflation, Capital Flow Risks Despite Oil Revenue Gains

Nigeria could experience a short-term increase in oil revenues as tensions escalate between Iran, the United States and Israel, but the broader economic implications may include rising inflation, volatile capital flows and pressure on businesses, according to the Centre for the Promotion of Private Enterprise (CPPE).

The Chief Executive Officer of CPPE, Muda Yusuf, said the escalating geopolitical tensions in the Middle East represent a “double-edged shock” for the Nigerian economy.

While higher global crude prices could strengthen fiscal revenues and foreign exchange inflows, the resulting increase in domestic energy costs and financial market uncertainty could undermine household welfare and economic stability.

The warning comes amid rising hostilities involving Iran, the United States and Israel, which have heightened fears of disruptions to global energy supply routes. Of particular concern to global energy markets is the Strait of Hormuz, a strategic maritime corridor through which roughly one-fifth of the world’s crude oil supply passes daily.

Any disruption to shipments through the strait typically triggers immediate volatility in global oil markets.

According to CPPE, geopolitical tensions in oil-producing regions historically lead to increases in crude oil prices as traders react to potential supply disruptions.

For Nigeria, which depends heavily on crude oil for foreign exchange earnings and government revenue, higher oil prices could translate into improved export receipts and stronger fiscal inflows.
Yusuf noted that stronger oil prices could increase foreign exchange earnings, improve external reserves and enhance liquidity in the foreign exchange market. Higher oil revenue would also translate into larger allocations to the Federation Account shared among the federal, state and local governments.

However, the think-tank warned that Nigeria may not fully benefit from rising oil prices unless structural challenges affecting crude oil production are addressed. Nigeria’s oil output has remained below installed capacity in recent years, largely due to persistent oil theft, pipeline vandalism and limited investment in upstream infrastructure.

Current production levels, estimated at around 1.4 to 1.6 million barrels per day, remain below the country’s technical capacity. CPPE warned that without improvements in production security and operational efficiency, Nigeria may struggle to maximise any potential revenue windfall created by higher global crude prices.

Beyond the potential revenue gains, the policy brief cautioned that the most immediate domestic risk from the geopolitical crisis could emerge through inflationary pressures driven by higher global energy prices.

Nigeria operates a deregulated downstream petroleum regime, which means fluctuations in international crude oil prices are quickly transmitted to domestic fuel prices. Increases in global crude prices typically lead to higher pump prices for petrol, diesel and aviation fuel.

Higher fuel prices have far-reaching consequences for the Nigerian economy because energy costs influence transportation, logistics, food distribution and manufacturing activities.

As transportation costs rise, the prices of goods and services across the economy often increase.
CPPE warned that sustained increases in fuel prices could intensify the country’s cost-of-living crisis, particularly at a time when household purchasing power is already under pressure from persistent inflation.

The organisation noted that the resulting scenario could create a divergence between fiscal gains and social outcomes, where government revenues improve due to higher oil prices while households face worsening economic hardship.

The report also highlighted potential risks to Nigeria’s financial markets if global investors become more risk-averse as the geopolitical crisis deepens.

Periods of international instability typically trigger a shift in global capital flows toward safe-haven assets such as U.S. Treasury securities and gold. Emerging markets like Nigeria often experience portfolio outflows during such episodes as investors reduce exposure to perceived riskier markets.

Given the sensitivity of Nigeria’s financial markets to foreign portfolio investment, CPPE warned that global financial uncertainty could lead to volatility in both the foreign exchange market and domestic capital markets.

The Nigerian stock market may also experience mixed sectoral impacts if the crisis persists.

Companies in the oil and gas sector could benefit from stronger earnings expectations linked to higher crude prices. In contrast, firms in sectors such as manufacturing, aviation, logistics and consumer goods may face rising operating costs due to higher energy prices and more expensive imported inputs.

These contrasting sectoral pressures could result in increased volatility across both equity and fixed-income markets.

CPPE further warned that Nigeria’s fiscal history shows that oil price windfalls often lead to increased public spending during boom periods, followed by fiscal strain when prices decline.

The current situation, according to the think-tank, presents an opportunity for more disciplined fiscal management.

The organisation advised that any additional oil revenue generated by the geopolitical crisis should be partly saved through fiscal stabilization mechanisms.

It also urged policymakers to reduce fiscal deficits, moderate public debt accumulation and prioritise productive capital investment over recurrent expenditure.
Yusuf also warned that a prolonged conflict in the Middle East could have broader consequences for global economic activity. Rising shipping insurance costs, supply chain disruptions and sustained commodity market volatility could slow global growth.

For Nigeria, whose export earnings remain heavily concentrated in crude oil, such global economic uncertainty could offset some of the benefits of higher oil prices.

To mitigate these risks, CPPE called for stronger policy measures to improve crude oil production, accelerate domestic refining capacity and strengthen transparency in the foreign exchange market.

The organisation also stressed the importance of targeted social protection measures to cushion vulnerable households from energy-driven inflation, while accelerating structural reforms aimed at diversifying Nigeria’s economy.

According to Yusuf, expanding non-oil exports, manufacturing, agro-processing, digital services and other productive sectors remains critical for reducing the country’s exposure to external shocks.

He noted that the ultimate impact of the geopolitical crisis on Nigeria will depend less on external events and more on the quality of domestic economic policy.

Strategic fiscal management, improved oil production efficiency and sustained economic diversification, he said, will determine whether Nigeria is able to convert geopolitical turbulence into long-term macroeconomic resilience.