UNCTAD Report: External Borrowing Costs Rise for Nigeria, Other Developing World Amid Strait of Hormuz Disruptions

Ndubuisi Francis in Abuja 

A new report by the United Nations Trade and Development (UNCTAD), has warned that as the Strait of Hormuz, a critical supply route remains virtually closed, the risks are now extending well beyond energy markets, spreading through the global economy, disrupting energy flows, raising prices and increasing financial pressure on developing countries like Nigeria.

The Strait of Hormuz is one of the world’s most critical maritime chokepoints, carrying around a quarter of global seaborne oil trade and significant volumes of liquefied natural gas and fertilisers.

The report is coming as the United Kingdom (UK), weekend scheduled a meeting of 35 nations, including Nigeria, to weigh diplomatic and political options available to restore freedom of navigation, guarantee the safety of trapped ships and seafarers, and to resume the movement of vital commodities through the vital trade route.

According to the UNCTAD report, external borrowing costs for Nigeria and other developing nations are on the rise following the war and closure of Hormuz, the critical energy corridor.

Although Nigeria’s Economic Management Team (EMT) recently met to assess the impact of the war in the Middle East, it did not directly cite increased external borrowing costs as one of the impacts of the Gulf war on Nigeria, but identified three immediate transmission channels through which the crisis could affect the Nigerian economy.

These are via crude oil and gas prices, with volatility in global energy markets already driving increases in domestic prices, including fuel, diesel, cooking gas, and fertiliser.

It identified the second channel as capital flows and financial markets, noting that heightened geopolitical risks may prompt a shift to safe-haven assets, affecting capital flows into emerging markets, including Nigeria, as well as broader financial market conditions.

Further according to the report, the last channel is global logistics and supply costs, adding that disruptions to major shipping and energy supply routes could raise international freight and logistics costs, putting upward pressure on domestic prices. 

The report by the UN trade body said, “As uncertainty rises, investors are shifting away from riskier assets, selling stocks, bonds and currencies in developing countries. The sell-off has been more pronounced than in advanced economies. This is typical in periods of heightened risk.

“Currencies in developing countries have weakened, making imports such as fuel and food more expensive. At the same time, countries are facing higher costs to borrow on international markets, making it harder to raise capital when it is most needed.

“Borrowing costs have risen across developing regions in the weeks since the escalation.”

To underscore the rise in borrowing costs, using a region-by-region yield on sovereign bonds, UNCTAD noted that the African region recorded a 0.64 per cent increase in yield since the war commenced.

Developing Asia and Oceania recorded a 0.7 per cent yield while Latin America and the Caribbean are yet to witness an increase.

The increased yield on sovereign bonds affects Nigeria which had only last November floated a dual-tranche US dollar-denominated benchmark Eurobond to address the country’s 2025 fiscal budget deficit and refinance existing outstanding indebtedness.

While further noting that trade is losing momentum, with global merchandise trade expected to slow sharply, from about 4.7 per cent growth in 2025 to 1.5–2.5 per cent in 2026, UNCTAD also explained that inflation pressures are equally rising, energy shocks pushing up prices and increasing the cost of living.

It added that this was as financial stress increases, forcing investors to pull back from developing countries, weakening currencies and raising borrowing costs, UNCTAD added.

The report explained that four billion people live in Nigeria and countries already spending more on debt than on health or education.

Nigeria spent about $5.21 billion servicing external debt obligations in 2025, over 72 per cent of the country’s total international payments during the year.

The global trade body stated that as borrowing costs rise and fiscal space shrinks, developing countries were discovering that the cost of finance is not merely financial, but is measured in postponed investments, constrained budgets and development goals drifting further from reach.

Disruptions in the Strait of Hormuz underscores the vulnerability of critical maritime chokepoints to geopolitical tensions and their potential to transmit shocks across supply chains and commodity markets, it observed.

The report pointed out that the socio-economic implications for developing economies like Nigeria is that many of them already face high debt service burdens, limited fiscal space and constrained access to finance. 

It stated, “In this context, rising energy, transport and food costs could strain public finances and increase pressure on household budgets, potentially heightening economic and social pressures and complicating progress toward sustainable development, particularly in economies heavily dependent on imported energy, fertilisers and staple foods.

“As uncertainty rises, investors are shifting away from riskier assets, selling stocks, bonds and currencies in developing countries. The sell-off has been more pronounced than in advanced economies. “This is typical in periods of heightened risk.

Currencies in developing countries have weakened, making imports such as fuel and food more expensive. At the same time, countries are facing higher costs to borrow on international markets, making it harder to raise capital when it is most needed.”