U.S./Israel attacks on Iran: Impacts on Nigeria

In this episode, share my initial thought on the impact of the war in Iran on Nigeria’s economy.

It is interesting and good, for Nigeria, that the Dangote Refinery in Nigeria is fully operational and is already refining with full local refining capacity, which is a blessing to us in Nigeria. I wonder how things would have been if by now as the Iran war, the Trump Tariff war disruptions are happening and Dangote refinery is not existing and operating in Nigeria. Nigeria would have been in more precarious situation. Therefore, once again, kudos to Alhami Aliko Dangote, for his vision and tenacity of purpose to establish the Dangote Petrochemical Refinery in Nigeria, against all odds. Indeed, the Dangote Refinery will be a very big shock absorber for Nigeria in the current global situation, and the unraveling geopolitical and economic dynamics. That being said, it is not automatic that just because Dangote is refining crude oil in Nigeria, the price of PMS will reduce. As we are witnessing, the price of PMS has inched upward, because Dangote is operating in a liberalized sector and is therefore subject to global market forces. The saving grace is that Dangote has significantly reduced the rate of the imports of Nigeria’s Refined oil products, which was a serious national waste, and a major causative factor for hyper inflation through subsidies!

In Nigeria, we are witnessing the initial impacts of the war in Iran, with the increase in PMS price by Dangote Refinery. But that being said, this is just early days yet. In my opinion, Nigeria’s federal government should hedge against potential economic impacts in the mid to long term. If the war extends beyond the next one week, I reckon that the global oil and gas prices will further escalate. And that, will impact on our local fuel and energy pricing. On the flip side, the crude oil pricing is increasing, which means Nigeria, as a major global oil and gas exporter will potentially make surplus over and beyond initially targeted revenues when hedged on the initially projected benchmark crude pricing.

So Nigeria’s oil and gas revenue will increase. But, we already have a big “gap” of indebtedness and the revenue crisis as it were. We hope that the federal government will be able to close the fiscal gaps with this potential national income windfall opportunity .

Furthermore, looking at the cost of living crisis  versus purchasing power in Nigeria, there have been some positive trends in terms of headline inflation tapering down a bit, while  food inflation declined in the past months. However, a very important point to note is that the purchasing power of average Nigerians in declining. This is in addition to the fact that  energy in terms of gas, diesel, and petrol are critical to the other economic variables, particularly in Nigeria, whether it is agriculture or hair salons, transportation business, other small and medium scale and even the large scale enterprises. Everybody uses one form of power or the other. And by and large, 65% of the informal sector in Nigeria, power their businesses by themselves. So they have to pay higher for petrol, for the vehicles that transport people.  They have to pay higher for diesel for those that power for business. Consequently, there will be a direct impact on the economy because they will definitely have to pass the costs to the consumers.

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Therefore, while the War in Iran rages on, the federal government of Nigeria and state governments can hedge for the mid-to long-term. Like I have stated and written severally, Federal and State governments must imbibe fiscal discipline.  Fiscal discipline is about prudence in government, it is about blocking leakages, it is about conscious, deliberate and proper management fiscal governance and frameworks, budget planning and execution, etc. We are all witnessing the unpredictability of the global social and economic variables, as the case may be. So with the increase in oil and gas pricing in the short to mid-term, Nigeria should be able to cream as much as it can, but we should not follow the template used during the time of the IBB era around 1991 to 1992 when Nigeria taked so much oil revenue -  what was called, the “oil windfall”,  during the Iraq invasion by the United States of America, and the windfall was not prudently managed. The same thing happened with the “Udoji award”, during the time of General Gowon around 1974 when Nigeria was enjoying huge revenues from oil and there was bumpers salaries for workers, etc, with backlash effect on inflation, etc.

Therefore, based on the foregoing, savings, and prudence are very critical in preparing and building for the future. This is especially so, given the fact that we facing our own issues of insecurity, and a struggling economy, and there is the build up to 2027 elections.

So, how government is able to be strategic, to hedge against the crucial fallouts of the war in Iran and other global political, social and economic dynamics is crucial. Of course, times like this will not last forever. But what is important is that we are conscious in saving for the rainy day.  Now it seems to be  a rainy day for Nigeria, on one side, but then what happens post-Iranian war? And then before the Iranian war finishes with the US and Israel, what will be Nigeria’s economic strategy, going forward?

It is important to note that, even before the War in Iran started, Nigeria has already been in fiscal crisis, with multiple budgets from 2024 active in the same year, with less than 50% capital expenditures including projects executed since 2024 not yet funded or paid for. Therefore, imbibing fiscal discipline is a sine qua non for Nigeria’s economic recovery.

Like I have repeatedly advocated, the alignment of Nigeria’s fiscal policy and monetary policy, and entrenchment of fiscal discipline are critical success factors for Nigeria’s economy turnaround, growth, development, and sustainability.