Nigeria’s financial markets may face a mixed outlook if tensions in the Middle East escalate into a wider conflict, according to recent macroeconomic analyses by investment firms, which say the impact will largely come through global oil prices.
A macro report by Comercio Partners on Wednesday titled ‘Hormuz Shock, Nigerian Oil: Price Spike Offers Limited Upside’ explained that the effects on Nigeria would be transmitted mainly through oil revenue, exchange rate liquidity, inflation, and capital flows.
“For Nigeria, the impact is transmitted through oil prices, fiscal balance, FX liquidity, inflation, and capital flows,” the report noted, stating that the country produces roughly 1.3–1.5 million barrels per day of crude and condensates. Nigeria’s 2026 federal budget was benchmarked at $65 per barrel, meaning any sharp rise in global oil prices would immediately increase government revenue.
“If Brent crude rises above $80–$100 per barrel due to a disruption in the Strait of Hormuz, gross oil revenue improves immediately,” the report indicated, adding that at 1.4 million barrels per day, every $10 increase in the oil price translates to roughly $14 m in additional daily gross revenue, or about $5.1 bn annually before production costs and joint venture cash calls.
Higher oil prices could therefore provide short-term fiscal relief. Comercio Partners explained that “higher oil prices strengthen federally collected revenue, improve FAAC distributions, and reduce pressure on the fiscal deficit.” In addition, “FX inflows through crude sales increase external reserves and support the naira, provided production volumes hold and leakages remain contained.”
However, analysts warn that Nigeria’s ability to fully benefit from an oil price surge remains limited by production constraints. The report notes that “if domestic oil output remains capped near 1.4 million bpd due to theft, pipeline outages, or underinvestment, Nigeria captures only price gains, not volume gains.”
The experts also said that Nigeria’s geographic position means it is not directly exposed to disruptions in the Strait of Hormuz, one of the world’s most important oil shipping routes.
The report explains that “Nigeria does not ship its crude through the Strait of Hormuz”, noting that exports move westward through Atlantic terminals such as Bonny, Forcados, and Qua Iboe to markets in Europe, India, and the United States.
Yet the global nature of oil pricing means Nigeria will still feel the impact of any supply shock. According to the report, “Oil pricing is global. Nigerian grades such as Bonny Light are priced off Brent crude. If a Hormuz disruption removes even five million barrels per day from global supply, Brent rises irrespective of Nigeria’s physical distance from the Gulf.”
Another investment firm, Arthur Steven Asset Management, echoed similar sentiments, saying that the broader economic consequences for Nigeria would be complex because the country is both a crude exporter and a major importer of refined petroleum products.
In its investor brief on the possible impact of a US–Iran war, the firm noted that “on the positive side, higher global oil prices would increase export earnings and government revenues, as oil accounts for the majority of Nigeria’s foreign exchange inflows and a substantial share of fiscal revenue.” Improved oil receipts could also “strengthen foreign reserves and provide temporary support for the naira”.
However, higher global oil prices could also worsen inflation in Nigeria. The firm warned that “Nigeria’s structural dependence on imported refined fuel products means that higher global crude prices would also raise domestic fuel costs”, which would “cascade through transportation, food distribution, and manufacturing, intensifying inflationary pressures.”
Inflation remains a key concern because energy costs feed directly into everyday expenses. According to the report, rising fuel prices would affect “transportation, food distribution, and manufacturing”, adding pressure to consumer prices and reducing household purchasing power.
Higher inflation could also force tighter monetary policy. The report notes that the inflationary environment “may prompt tighter monetary policy by the Central Bank of Nigeria”, which could result in higher interest rates. While this may help stabilise the currency, it could also increase borrowing costs for businesses and households and slow economic growth.
The PUNCH reports that the Monetary Policy Committee of the CBN cut the benchmark rate by 50 basis points in February to 26.50 per cent.
Financial markets could therefore react in different ways. Arthur Steven Asset Management stated, “Nigeria’s financial markets would likely experience mixed reactions. Oil and energy-related equities could benefit from improved revenue expectations, particularly if higher prices are sustained. Government fiscal outlooks might improve in the short term, potentially supporting sovereign bond performance.
“However, persistent inflation and global risk aversion could dampen foreign portfolio inflows. If international investors retreat from emerging markets during heightened geopolitical uncertainty, Nigerian equities and fixed-income markets could face volatility. Currency stability would depend on the balance between improved oil earnings and external financial pressures.”
The report concluded that the war between the US and Iran would trigger significant global economic disruption, primarily through the oil price channel. The resulting rise in energy prices would likely elevate inflation, tighten financial conditions, and slow global growth, with the higher oil revenues offering Nigeria short-term fiscal and external relief, “but these gains would be counterbalanced by rising inflation, potential currency pressures, and slower non-oil sector growth”.
On how investors should position themselves, ASAM said, “This scenario presents both opportunity and risk. Globally, energy assets and safe havens may outperform amid volatility. In Nigeria, oil-linked assets could benefit from higher prices, but inflation and monetary tightening would require cautious portfolio positioning. The ultimate economic outcome would depend on the scale, duration, and geopolitical containment of the conflict.”
Espousing further on the opportunities and risks, CardinalStone Research, in a thematic report on Thursday on the oil and gas sector, stated, “For Nigerian oil producers, a rise in the crude price should translate to additional earnings. However, the true value of this upside is highly contingent on how long the risk premium persists. Geopolitical disruptions of this kind, particularly when prolonged, have historically kept prices elevated.
“For our upstream coverage, we envisage a 12.5 per cent to 57.2 per cent year-on-year growth in revenue if average oil prices range between $70.00/bbl and $100.00/bbl in 2026. This range captures both the floor supported by near-term demand resilience and the ceiling implied by sustained geopolitical tensions. The picture for the downstream segment is, however, more nuanced. Higher crude prices could mean increased feedstock costs for refineries, which could negatively impact margins if not entirely passed on to consumers.”
For the banking sector, CardinalStone Research indicated, “We expect the US–Iran conflict to be a mixed bag for the Nigerian banking sector, with the magnitude of passthrough on performance and asset quality largely contingent on the conflict’s duration. We think that sustained elevated oil prices should lead to stronger FX inflows, improved system liquidity, and firmer deposit growth across the banking sector, supported by higher oil receipts from IOCs and increased FAAC disbursements to the public sector.
“The positive impact should be most notable in banks with meaningful upstream oil exposures and a high concentration of current and savings account deposits to total Interest-Bearing Liabilities. As geopolitics remain a wild card, the CBN may be cautious on its easing plans, keeping yields on loans and sovereigns elevated and margins resilient. While liquidity is poised to expand, the effective conversion of incremental deposits into earnings growth is likely to be capped by the 45.0 per cent CRR for commercial banks and the 75.0 per cent CRR on non-TSA public sector funds.”
SOURCE: ,PUNCH NEWS PAPER
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