• Nigeria to earn N976b monthly from rising prices
• FG must plan to avert inflation, reduce looming fare increase
• FX earnings may rise by 15%, says Pedabo
• Crude-backed loans, oil theft may undermine gains
Escalation of hostilities in the Middle East, following the involvement of the United States in the Israel-Iran conflict, has triggered extreme volatility in the crude market, with prices set to spike sharply as the market opens today.
While this is bad news for the global economy, Nigeria joins a few potential net gainer countries of the crisis. But oil theft concerns, outstanding oil-backed loans, poor governance framework and higher cost of refined products may undermine the gains, The Guardian was informed at the weekend.
The potential closure of the Strait of Hormuz may leave the global economy with significant strain and a possible price spiral, raising fresh inflation concerns.
Whereas consumers may pay much higher prices for petroleum products in the coming months, the Federal Government stands a chance to increase its revenue substantially from the rising crude to bridge the gaping hole in its revenue.
Upside, the naira appears set for one of the longest stable runs in recent years. Higher FX earnings could strengthen the local currency to above N1500/$ in the coming weeks. The currency has traded around between N1400/$ and N1600/$ since the beginning of the year.
At a black market rate of N1590/$, market arbitrage has reduced significantly and contained within the globally recommended five per cent margin.
A stronger naira is a hedge against inflation, a battle the government said it is winning. A more stable FX market could also unlock the fund inflow and increase the competitiveness of the local economy.
The Federal Government hopes to source 56 per cent of the 2025 budget equity from crude sales. But poor supply and volatile prices were major threats to the ambition in the first quarter with The Guardian reporting a net loss of about N2.5 trillion.
The possibility of achieving the N19.5 trillion oil revenue target comes alive with the soaring prices of crude oil, analysts have said even though the real game-changer is increasing production significantly beyond the current 1.5 mbpd.
Rising prices mark a turning point and could help the country to recover part of what it lost in the first quarter, increasing the prospect of funding the 2025 budget and reducing fiscal deficit.
But insecurity is perhaps a major hurdle for Nigerians in gaining from the troubled Middle East. Reports put the estimated daily crude loss at 200,000 barrels per day (bpd). Experts said the historical haemorrhage must be contained and production ramp up for the country to reap the gains of rising crude prices.
In its current form, Nigeria is posting some gains though they could be much higher. This month alone, the government could earn an additional N976 billion ($630 million) in oil revenue or even more should crude continue to soar at the speed seen in the past month during which Brent gained about 20 per cent.
Analysts are already predicting a $90 to $100 oil price in the short term with JP Morgan suggesting the price could jump to $130 per barrel in a worst-case scenario.
The prices of crude are expected to sustain $12 to $15 gain compared to May.
While this revenue windfall offers a welcome respite for Nigeria’s fragile fiscal position and could further strengthen the naira, stakeholders have warned that the real benefits may be eroded by potential hikes in prices of petroleum products.
The rise in crude prices is expected to push up the cost of refined petroleum products by 50 per cent and increase pump prices to the January level when the price hovered around N1,000 per litre.
Already, prices of fuel, at the weekend, were adjusted to over N900 per litre. NNPC retail stations dispensed at N915 in Lagos yesterday, plus five per cent of the price the commodity sold earlier last week.
This development, stakeholders said, could accelerate inflation and place further strain on households and businesses as higher transportation cost feeds into the general price level.
Besides, the global economy braces for renewed inflation threat, which means a more cautious approach to interest rate cuts by developed central banks.
This portends dual risks to Nigeria and other emerging markets – the risk of imported inflation and possible capital outflow to haven, which could increase FX market pressure and potentially reduce liquidity.
Experts who spoke with The Guardian, yesterday, noted that although Nigeria is a major oil exporter, it remains heavily reliant on fuel imports due to underperforming refineries, especially the Nigerian National Petroleum Company Limited refineries.
Hence, the global increase in crude prices will directly affect the cost of importing refined products such as petrol and diesel.
Tensions escalated further over the weekend as Iran’s parliament voted to close the Strait of Hormuz, a vital corridor for global oil shipments in response to what it called U.S. “aggression” and the perceived inaction of the international community.
A senior Iranian lawmaker confirmed that there was parliamentary consensus on the move, though a final decision rests with the country’s Supreme National Security Council.
The Strait, located at the mouth of the Persian Gulf, is a critical chokepoint through which an estimated 20 per cent of the world’s oil, about 17 to 18 million barrels per day, passes. Its closure, even if temporary, would have dramatic implications for global energy supply chains and perhaps trigger further price surges.
The rising tension follows coordinated airstrikes by the United States and Israel on key Iranian military and nuclear sites. U.S. President Donald Trump described the attacks on nuclear facilities at Fordow, Natanz, and Isfahan as “successful” and warned Iran against retaliation as “there are many targets left”.
Meanwhile, Israel’s military confirmed its forces carried out dozens of strikes targeting Iranian military installations across Isfahan, Bushehr, Ahvaz and Yazd.
According to an Israeli army spokesperson, the strikes hit ballistic missile storage facilities, drone warehouses and missile launch platforms. Several Iranian personnel were reportedly killed.
The average Brent oil price ended last week at $77 per barrel, aligning with Nigeria’s 2025 budget benchmark which was set at $75 per barrel. Nigerian crude, especially Bonny Light, Brass Rivers and Qua Iboe was averaging $79 per barrel. The price hovered around $65 in May, meaning that Nigeria has already seen an increase of $14 per barrel due to the war.
Stakeholders said oil prices could hit $85 and warned, however, that the global economy may face further crisis if war pushes prices to $100 per barrel, a development which may impact the global economy, reduce margins for Dangote Refinery, which largely depends on imported crude from the US.
With the current $14 per barrel gain, Nigeria would be earning an additional $630 million in June for producing 45 million barrels.
In May, the country delivered around 1.4 million barrels per day or 45 million barrels for the entire month.
Last week, depot owners and Dangote Refinery increased ex-depot prices in response to the global oil market as operators, including Emadeb, Pinnacle, Swift and Rainoil Lagos, raised their prices by as much as N18 per litre.
Retail outlets responded with changes in pump price moving to N925 in Lagos from N885. In the north, the commodity is trading at around N1,000.
Speaking yesterday, experts insisted that while higher oil prices offer immediate fiscal opportunities, the Federal Government must act decisively to manage inflation, protect consumers and ensure that rising revenues translate to real economic relief for millions of its citizens.
Experts are beginning to see the Middle East tension differently as it affects Nigeria this time. Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, admitted there might be a flight of investments to safe-haven assets as uncertainty heightens.
These could come in two layers – tension-induced de-risking, which has started. Higher oil prices would also trigger a fresh inflation concern, which could mean keeping interest rates in the global north high, making their economies more attractive for capital flow.
Despite this dragnet and its potential setback for stability in developing countries, historically, output growth and market performance are rising functions of crude oil prices. This relationship may not see a breakdown anytime soon, not likely in this bullish trend.
“The outlook for the Nigerian stock market is therefore likely to be positive in the current context,” Yusuf stressed. He added that the surge in crude oil price would impact Nigeria’s FX earnings, with crude still the highest Nigeria’s FX earner.
“The oil sector currently accounts for a significant amount of government revenue. An improvement in crude oil prices would therefore have a significant impact on government revenue. An improvement in revenue would positively impact fiscal consolidation and hopefully moderate the growth of the fiscal deficit,” he said.
An energy economist, Ademola Adigun, said that while global crises often push oil prices higher, as he projects a $90 per barrel peak, it would offer Nigeria a financial lifeline.
“Every time oil prices rise due to crises in the Middle East, it is actually beneficial in some respects,” Adigun noted.
According to him, it would make it easier for Nigeria to meet certain financial obligations and allow operators to investment decisions on deals that have been stalled, especially those requiring funding or financing.
He said a project like the AKK pipeline might now go through because, with the higher oil prices, the government can afford to fund the deal.
But Adigun warned that higher oil prices come with significant downsides – higher transport costs and tighter margins for local refineries.
“Since Nigeria still imports crude from the U.S., we could soon see an increase in retail fuel prices. So, while it’s a positive for government revenue and perhaps the broader economy, Nigerian consumers will likely have to pay more for petrol and other goods,” he said.
He added that while oil prices are unlikely to reach $100 per barrel, a prolonged spike could have destabilising effects on the economy.
“The world is smarter now; everyone knows that $100 oil is not good for anyone. High prices make fracking and other alternative extraction methods more viable, which increase supply and disrupts the market further,” he said.
The expert stressed the need for policy vigilance, adding that government must be mindful of the implications for the naira and inflation.
Partner at Kreston Pedabo, Olufemi Idowu, said the ongoing conflict has sent shockwaves through global markets.
“Nigeria, as a major oil-producing nation, is expected to experience both positive and negative economic implications,” Idowu said.
He noted that the recent surge in oil prices exceeding the $75 per barrel benchmark set in the 2025 budget could yield a short-term revenue windfall, which could improve FX reserves by 15 per cent and stabilise the naira.
A stronger naira could make imports cheaper and reduce inflationary pressures, he said.
However, Idowu cautioned that rising fuel prices were already hurting ordinary Nigerians, saying: “Increase in global oil prices has already led to a hike in petrol prices in Nigeria, with a litre of PMS now selling over N900”.
“This is impacting transportation and energy costs and could have devastating effects on small and medium businesses,” he said.
He added that Nigeria’s ability to capitalise on the oil price surge may be limited by existing crude-backed loans.
“Unfortunately, Nigeria’s existing crude oil-backed loans from international banks could limit its ability to fully benefit from the international oil price hike, meaning that the current optimism may be temporary.”
A former president of the Chartered Institute of Bankers of Nigeria, Prof. Segun Ajibola, has warned that while Nigeria may benefit from the recent surge in oil prices triggered by the escalating conflict in the Middle East, the country must urgently address its longstanding oil production constraints to fully capitalise on the opportunity.
Ajibola noted that, if oil supply is disrupted, prices will likely rise based on market forces.
He said: “Countries that are not part of the conflict may benefit from higher prices. However, this won’t be automatic. Importing countries often have strategic reserves they can draw from to buffer shocks and stabilise prices.
“How countries like the US and China respond, whether they choose to pay higher prices or fall back on their reserves, will be critical in determining the trajectory of global oil prices.”
He also warned that market reactions could be compounded by uncertainty, adding that as the conflict escalates, no one can predict how long it will last as such panic buying remains a possibility, which could further drive up prices.
Looking at Nigeria’s 2025 budget assumptions, which are based on crude oil production of 2.06 million barrels per day at a benchmark price of $75 per barrel, Ajibola said “Anything above that price could significantly boost revenue.”
He said while Nigeria stands to benefit from the price surge, the country’s capacity to scale production remains limited.
According to him, higher prices will likely help boost revenue and possibly allow Nigeria to meet or surpass budgetary targets, which makes Nigeria a potential gainer from the Middle East conflict.
Crucially, Ajibola stressed the importance of long-term planning, noting that oil production needs to be more elastic as the country needs to resolve the structural issues affecting production.
