ECONOMICS OF GLOBAL TENSION AND SMALL BUSINESS

 TIMI OLUBIYI  contends that the crisis in the Middle East calls for a more diversified, production-driven, and self-reliant economy

The ongoing tensions in the Middle East may seem geographically distant from Nigeria, but the economic effects are already being felt in very real and personal ways across many countries including Nigeria. For ordinary Nigerians, the impact shows up in rising fuel prices. So, we may be experiencing increased transportation fares, higher food costs, and a volatile naira if the unrest continues. Remember, electioneering season is almost here, politicians may face a far more complex environment than in previous cycles. With current reality, voters may have less patience, interest and may be more economically stressed, and more focused on immediate survival than long-term projections which the elections stand for.

The first and most immediate effect of global tension anywhere is usually a spike in crude oil prices due to fears of supply disruption. Ordinarily this should appear like a positive impact for Nigeria as an oil-exporting country because higher oil prices should increase government revenue. But the benefit is often limited by our production challenges, oil theft, pipeline vandalism, and largely the pegged Organization of the Petroleum Exporting Countries (OPEC) output quotas. In reality, Nigeria may not produce enough oil to fully take advantage of high prices. At the same time, higher global oil prices generally increase the cost of imported refined fuel, shipping, insurance, and manufactured goods. Since Nigeria still imports a significant portion of what we consume from abroad these higher global costs may quickly translate into domestic inflation if the trend continues. The result will be painful, small businesses will struggle even more with operating expenses, transport costs, and majorly transaction cost will climb further. Already many households are already battling many challenges but the current reality will have their purchasing power shrinking even more. Inflation in Nigeria is not just a statistic; it is the daily reality of families and businesses who must continue to spend even more for the same needs and services. In an economy where food inflation is already high any additional imported inflation would worsen hardship and deepens poverty levels.

Another major effect is on foreign exchange stability, and campaign financing itself could also be affected in the coming elections if the global tension is not tamed early enough. Whenever global tensions rise, investors move their funds to safer markets and this often weakens emerging market currencies, and Naira is not immune. A weaker Naira makes imports even more expensive, which could further fuel inflation. It may also increase the cost of servicing Nigeria’s external debt, putting more pressure on government finances. The global uncertainty that we will experience in the coming weeks to months may likely reduce foreign portfolio investment in Nigerian equities and bonds. Investors may prefer to wait and see how things unfold. This cautious sentiment would slow capital inflows to the capital market and into our economy, and the outcome is better imagined. Companies that rely heavily on imported raw materials are especially vulnerable to exchange rate volatility that will come with current reality.

If tensions in the Middle East escalate further for instance through a broader regional conflict involving major oil producers or a prolonged disruption of key shipping routes, oil prices may even surge further, global inflation could intensify, and financial markets could become more volatile. In such a scenario, Nigeria might see temporary revenue gains but inflation could accelerate faster than income growth. The Naira could face renewed pressure, and interest rates might remain high as monetary authorities attempt to control inflation. Poverty levels could worsen real time because as real wages fail to keep pace with rising prices, living below poverty line increases. Youth unemployment, already a concern,  may increase if businesses cut back on hiring due to uncertainty. In extreme cases, prolonged global instability could even disrupt remittance inflows and compounding domestic economic stress when expectations are not met.

However, within this difficult environment lies an opportunity. Global instability reinforces an important lesson: Nigeria must reduce its vulnerability to external shocks. Overdependence on crude oil exports leaves the country exposed to geopolitical events thousands of kilometers away. True resilience will come from diversification of revenue base. Government must accelerate investment in local refining capacity to reduce dependence on imported petroleum products. Strengthening domestic agriculture is critical to reducing food imports and improving food security. Supporting small and medium enterprises as well through access to credit, low interest loans and infrastructure can stimulate local production and job creation. Fiscal discipline is also essential; any windfall gains from higher oil prices should be saved in stabilization funds, invested in infrastructure, education, healthcare, and technology, rather than consumed through recurrent expenditure. Strengthening foreign exchange management through improved export diversification including non-oil exports such as agro-processing, solid minerals, and services will help stabilize the Naira over time.

For businesses, the path forward requires adaptation and sourcing all required resources locally where possible, hedging against currency risks, investing in energy efficiency, and building financial buffers. The era of predictable global markets is over; volatility is becoming the norm rather than the exception.

Ultimately, the unfolding crisis in the Middle East serves as both a warning and a call to action for Nigeria. The warning is clear: as long as the economy remains heavily tied to crude oil exports and imports of essential goods, distant conflicts will continue to shape domestic hardship. The call to action is equally clear: build a more diversified, production-driven, and self-reliant economy. If tensions escalate, Nigeria will feel the shockwaves through higher inflation, higher cost of fuel pump price, currency pressure, and deeper poverty. But if reforms are sustained and strategic investments prioritized, Nigeria can transform global uncertainty into a catalyst for structural change. The future will depend not on whether oil prices rise or fall, but on whether Nigeria uses each episode of global tension as an opportunity to strengthen economic resilience, protect vulnerable citizens, and build a stable foundation for long-term growth and prosperity.  

Dr. Olubiyi is an expert in Entrepreneurship and Business Management