US, Israel–Iran War: Oil Windfall or Economic Shock for Nigeria

Michael Olugbode

The escalating confrontation between the United States and Iran has unsettled global energy markets, lifting crude oil prices and placing oil-dependent economies such as Nigeria at a critical turning point between potential revenue gains and renewed economic pressure.

As tensions deepen in the Middle East, fears of supply disruption around the Strait of Hormuz — a vital artery for global crude shipments — have pushed oil benchmarks higher. Even without an outright blockade, the risk premium attached to instability in the Gulf has been enough to jolt markets. For Nigeria, Africa’s largest crude producer, the consequences are immediate and far-reaching.

On the fiscal side, higher oil prices could strengthen government revenue if sustained above the federal budget benchmark. Crude exports remain Nigeria’s main source of foreign exchange earnings, meaning elevated prices could improve dollar inflows, bolster external reserves and ease pressure on the Naira. With stronger buffers, the Central Bank of Nigeria would have more capacity to stabilize the currency and manage volatility in the foreign exchange market.

Oil and gas companies quoted on the Nigerian Exchange Limited may also benefit from stronger earnings expectations. International and indigenous producers could record improved cash flows, while renewed global demand for non-Middle Eastern crude may enhance Nigeria’s strategic value in global energy supply chains.

However, structural challenges remain. Nigeria has struggled to consistently meet production quotas set by OPEC due to operational disruptions and oil theft. Without higher production volumes, the financial upside from rising prices may fall short of expectations.

Beyond crude exports, the domestic economic impact is more complex. Nigeria, despite being an oil producer, has historically depended on imported refined petroleum products. Rising global crude prices typically translate into higher petrol and diesel costs, increasing transportation expenses, manufacturing input costs and food prices. Such pressures could fuel inflation and weaken household purchasing power.

This is where the role of the Dangote Petroleum Refinery becomes critical. The refinery, designed to process large volumes of crude domestically, has begun reshaping Nigeria’s downstream landscape by reducing dependence on imported refined products. In theory, expanded local refining could cushion Nigeria from extreme international fuel price swings by lowering freight costs and reducing exposure to foreign exchange pressures tied to fuel imports.

Yet analysts caution that domestic refining does not entirely insulate Nigeria from global price movements. Crude oil remains priced in international markets, meaning local pump prices are still influenced by global benchmarks. If crude prices surge significantly due to prolonged conflict, domestic refined product prices may also rise, even if supply logistics improve.

Financial markets are likely to reflect this mixed outlook. While oil-linked equities could gain, broader market sentiment may turn cautious if global investors retreat to safe-haven assets. Emerging market currencies often come under pressure during geopolitical crises, and the Naira could face renewed volatility if capital outflows intensify.

Ultimately, the impact of the U.S.–Iran conflict on Nigeria will depend on the duration of hostilities and the scale of disruption to global supply. A contained crisis that sustains moderately higher prices could strengthen Nigeria’s fiscal position and reinforce the strategic relevance of its crude and refining capacity. A prolonged or expanding conflict, however, could heighten inflation, strain consumers and test financial stability despite improved oil revenues.

For Nigeria, the situation underscores a long-standing paradox: rising oil prices can provide temporary fiscal relief, but the broader economy remains vulnerable to global shocks. The emergence of large-scale domestic refining capacity offers a partial buffer, yet true insulation will depend on sustained diversification beyond oil — both upstream and downstream — in an increasingly unpredictable global energy environment.