Rising Oil Prices Threaten Growth, Stability In Nigeria, SSA — BMI

Nigeria and other Sub-Saharan African (SSA) economies are facing heightened economic risks as rising global oil prices—driven by escalating geopolitical tensions between the United States and Iran, threaten to trigger inflationary pressures, weaken currencies, and slow growth across the region, analysts at BMI, a Fitch Solutions company, have said.

In its latest report, BMI indicated that it is revising its 2026 Brent crude price forecast upward from $67 per barrel to a range of $70–$75 per barrel, reflecting sustained disruptions in global energy markets.

The projection follows a sharp spike in oil prices, when Brent crude surged above $119 per barrel during intraday trading before moderating below $100.

The rally was attributed to a near halt in transit through the Strait of Hormuz, supply disruptions caused by limited storage capacity, and expanding attacks on oil infrastructure in the Gulf region. Analysts also pointed to diminishing expectations of a swift diplomatic resolution as a key factor sustaining price volatility.

BMI noted that the ripple effects of the energy shock are already being felt across global and regional markets. Equity indices in major economies, including China, Europe, and the United States, recorded losses following the spike, while SSA financial markets have come under considerable pressure.

Stock markets across the region have largely declined in recent weeks, with South Africa and Namibia among the hardest hit, while Ghana has shown some resilience.

Similarly, dollar-denominated sovereign debt across several SSA economies, including Nigeria, Kenya, Zambia, and South Africa, has weakened, reflecting investor concerns about rising external vulnerabilities.

Regional currencies have also depreciated against the US dollar, with notable weakness observed in the South African rand, Ugandan shilling, and Mauritian rupee, further amplifying imported inflation risks.

According to BMI, net energy-importing countries in SSA are particularly exposed to the ongoing oil price surge. Economies such as Somalia, Madagascar, Malawi, Eritrea, and Burundi, characterised by high dependence on imported fuel, limited foreign exchange reserves, and fragile fiscal positions, are expected to face the most severe economic strain.

In these countries, rising energy costs are likely to significantly increase import bills, intensify inflationary pressures, and force central banks to either pause or reverse monetary easing policies.

This could, in turn, weaken consumer purchasing power, constrain credit expansion, and limit capital formation, thereby slowing overall economic growth.

While oil-exporting nations like Nigeria stand to benefit from higher crude prices through improved export earnings and fiscal revenues, BMI cautioned that such gains may be partially offset by broader macroeconomic challenges.

Elevated fuel prices, exchange rate volatility, and structural inefficiencies in the domestic energy market could dilute the positive impact of higher oil revenues on the wider economy.

Beyond energy import dependence, the report highlighted that SSA economies with significant exposure to energy-intensive sectors—such as manufacturing, mining, and construction, are also vulnerable. Countries like South Africa, Zambia, the Democratic Republic of Congo, Guinea, and Botswana, where mining activities rely heavily on diesel-powered machinery and fuel-dependent logistics, are expected to face rising operational costs.

Manufacturing-driven economies, including Lesotho, Eswatini, and increasingly Benin, are also likely to experience margin compression as higher energy and input costs squeeze profitability.

In East and West Africa, emerging agro-processing hubs such as Kenya, Uganda, Côte d’Ivoire, Ethiopia, Tanzania, and Ghana are expected to contend with rising transportation and fertiliser costs, further affecting productivity and output.

BMI noted that these pressures could have broader implications for employment and fiscal sustainability. Energy-intensive sectors in SSA tend to be labour-intensive and more formalised, meaning that rising costs could slow job creation, weaken income growth, and reduce government revenue from taxes.

In addition to energy price shocks, the report pointed to evolving global trade dynamics as an added layer of risk. Recent adjustments to United States tariff policies, raising baseline tariffs to 10 per cent with potential increases to 15 per cent, are expected to erode SSA’s trade competitiveness, particularly in comparison to South Asian economies that may benefit from shifting trade patterns.

Countries such as Lesotho and Madagascar, which are heavily dependent on exports to the US market, are seen as particularly vulnerable. South Africa, the region’s most industrialised economy, also faces downside risks due to strained trade relations with the US and its reliance on energy-intensive industries.

BMI further highlighted that uncertainty surrounding trade arrangements, including the short-term extension of the African Growth and Opportunity Act (AGOA), is likely to weigh on investor confidence and limit long-term planning for export-oriented industries across the region.

The firm noted that the combined effects of rising oil prices, currency depreciation, tighter financial conditions, and weakening trade competitiveness are likely to create significant headwinds for SSA economies. For Nigeria and its regional peers, the current energy shock presents a complex policy challenge, balancing potential gains from higher oil revenues against the broader risks to inflation, growth, and macroeconomic stability.