How the Iran-Israel Conflict Could Shake Nigeria’s Economy

The tension between Iran and Israel is holding the world by its neck. This is not just for the potential human toll, but for the economic effects already surfacing across global markets. 

While Nigeria might seem geographically distant from the heart of this conflict, the country’s economy heavily reliant on oil exports and vulnerable to external shocks is already feeling the tremors.

Oil prices are rising, but can Nigeria make it count?

The most immediate impact of the conflict has been a surge in global oil prices. Following Israel’s military strikes on Iran, crude oil prices jumped sharply, with Nigeria’s key crude grades Bonny Light, Brass River, and Qua Iboe rising above $77 per barrel. 

For a country like Nigeria, whose 2025 national budget is benchmarked at $75 per barrel, this should be a positive development.

Nigeria’s oil production remains below its capacity, currently hovering around 1.5 million barrels per day, well under the potential of 2 million bpd. On top of that, many of its oil sales are locked into long-term contracts, limiting how much it can benefit from short-term price spikes. 

Just as it happened during the 2022 Ukraine-Russia war when oil prices soared but Nigeria failed to convert the boom into sustained economic gains the same pattern may repeat itself.

As SB Morgen pointed out, this “volatile windfall” may boost national revenue temporarily but won’t address the deeper structural issues in Nigeria’s oil sector, from poor infrastructure to production inefficiencies.

Inflation: The Hidden Threat

Even as oil prices bring in more revenue, they also threaten to push the cost of living even higher. 

With the removal of fuel subsidies, Nigerians are already grappling with expensive fuel. Any further hike in global oil prices will likely translate into higher pump prices for petrol and diesel, increasing transport, food, and energy costs.

The International Monetary Fund (IMF) has already projected inflation in Nigeria to hit 37% in 2026, following an average of 33.2% in 2024. While a slight moderation is expected in 2025, inflation is poised to resurge, driven partly by global energy shocks like the Iran-Israel conflict.

And since Nigeria imports most of its refined petroleum, the gains from oil exports could be cancelled out by the increased cost of importing finished products. It’s a painful paradox: exporting crude at high prices but importing fuel at even higher prices.

Interest rates and borrowing costs to climb

Rising inflation will likely push the Central Bank of Nigeria and others around the world to raise interest rates in response. 

According to economist Muda Yusuf, this tightening of monetary policy will make borrowing more expensive for businesses and consumers alike. 

Companies already battling high operating costs due to fuel and logistics inflation may now also face rising loan repayments, shrinking profit margins and reducing job creation.

Security Risks

The conflict’s consequences go beyond the economy. Nigeria sits in a region already vulnerable to extremist ideologies and insurgent groups. 

According to analysts at SBM Intelligence, if the Iran-Israel war takes on a more anti-Western narrative, jihadist groups across the Sahel including Boko Haram and ISWAP could exploit the situation for recruitment and radicalisation.

Worse still, if Western nations redirect attention and resources away from Africa to deal with the Middle East crisis, Nigeria and its neighbours may find themselves with less international support to fight terrorism. A security vacuum could widen, fuelling instability and threatening economic growth.

External vulnerabilities and investor sentiment

Investor confidence in Nigeria is also likely to take a hit. As geopolitical tensions increase and global markets grow more cautious, countries like Nigeria heavily reliant on oil and foreign investment become less attractive destinations. 

The IMF has already revised Nigeria’s GDP growth projection for 2025 downward to 3.0%, warning of continued vulnerability to global shocks.

More worrying is that these shocks could coincide with tighter financial conditions globally, leaving Nigeria in a precarious position: weaker growth, rising inflation, and reduced foreign capital inflows.

What should Nigeria do?

In the short term, Nigeria may enjoy a revenue boost from higher oil prices. But without addressing structural bottlenecks especially its limited oil production capacity, overdependence on imports, and lack of diversification the gains will be fleeting.

The IMF and other experts have stressed the importance of long-term reforms: expanding local refining, improving fiscal policy, and reducing reliance on commodity exports. 

Nigeria must also strengthen its internal security architecture and build resilience against global economic and political turbulence.