The Centre for Promotion of Private Enterprise (CPPE), a leading organized private sector (OPS) advocacy group in Nigeria, has described the outbreak of war between Israel and Iran as further compounding the current challenges of an already floundering global economy, with the attendant negative and positive implications for the Nigerian economy.
In a Note issued by the Director/Chief Executive Officer of the group, Dr. Muda Yusuf, the Centre noted that economies around the world were currently grappling with elevated geopolitical tension triggered by the Russian Ukraine war and the Israel-Hamas conflict, a situation further escalated by the unprecedented tariff disruptions by the trump administration.
Specifically, the OPS advocacy group pointed out that for the Nigerian economy, the implications remained mixed, portending a combination of risks and upsides for the economy.
On the risks of the Israeli-Iranian war, which escalated last few days, to the Nigerian economy, the CPPE projected that the war would further escalate the nation’s energy cost given the fact that a major driver of energy prices in Nigeria is the global crude oil price.
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It noted that with the outbreak of the Israeli-Iranian war, crude oil prices had surged to $75 per barrel from $65 per barrel a week before, representing a 15% jump within days, adding that this has obvious implications for petroleum product prices globally.
The group projected that economies around the world (Nigeria inclusive) would witness a surge in the price of petrol, diesel, jet fuel, gas and related products in the near term, an ugly development that will have far reaching implications for many economies and businesses.
Noting that energy cost is a major factor in the Nigerian inflation equation that impacts production cost, logistics cost, transportation costs, and the cost of power generation, the Centre stated that the Israel-Iran war presented an inflationary scenario and that the additional costs would be passed on to final consumers, depending on the degree of consumer resistance.
On a global inflation dimension, it stated that since energy prices had global inflationary implication, there is also an expectation of imported inflation in the unfolding geopolitical scenario.
The Centre further clarified: “High inflation drives interest rates as monetary authorities respond to the inflation outcomes of current geopolitical headwinds. A tighter monetary policy regime is expected in Nigeria and other monetary jurisdictions. The expectation is that economies around the world may experience renewed pressures on interest rate. Higher global interests could adversely impact portfolio flows with implications for foreign reserves.
“High energy cost, elevated inflationary pressures and a spike in interest rates are all headwinds that could undermine the profitability of businesses in the economy. Investors in the non-oil sector are likely to be more vulnerable in the present situation.
“Nigerian firms with strong business links in the Middle East and those with strong supply chain linkages in the region would be vulnerable at this time because of the current instability in the region.
“There is a risk of high monetary growth with an increase in revenue from the oil sector. Money supply increases in the Nigerian economy as oil revenue increases because of the monetization of oil receipts. This could pose additional inflation risk and exchange rate depreciation risk. This may provoke a tighter monetary policy stance, which could result in difficult credit conditions for businesses in the economy”it added.
On the implications of the war for global growth outlook, the OPS group forecasted that the already floundering global economy would be adversely impacted by this new geopolitical crisis, noting that global stock markets are reflecting this ominous outlook – the Dow Jones, S & P, and Nasdaq are trending downwards.
It added that there had been a flight by investors towards ‘safe haven assets’ as global uncertainty heightens, pointing out, however, that in Nigeria, there is historically a positive correlation between crude oil prices, GDP growth, and stock market performance.
The Centre argued that the outlook for the Nigerian stock market would, therefore, likely to be positive in the current context.
On the positive effects of the war for the Nigerian economy on a broader scope, the OPS advocacy group maintained that if the current conflict persisted and escalated, the Nigerian economy may record upsides in a number of areas, including forex inflows, revenue generation, and investments in hydrocarbon resources industry.
The CPPE expatiated: “The surge in crude oil price would impact on foreign exchange earnings, oil being the biggest forex earner for the country. This would even be more impactful if output performance improves. Crude oil price has surged to $75 per which is about 15% higher than before the outbreak of the Israeli–Iran conflict. This development would also positively impact the country’s foreign reserves, ensure better forex liquidity and ultimately the stability of the naira exchange rate.
“The oil sector currently accounts for about 50% of government revenue. An improvement in crude oil price 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.
“Investments in the oil and gas sector would post better returns if the conflict persists. High oil price is good news for upstream oil and gas investors”, it added.
Meanwhile, Reuters reported today that Iranian missiles struck Israel’s Tel Aviv and the port city of Haifa before dawn, killing at least eight people and destroying homes, prompting Israel’s defence minister to warn that Tehran residents would “pay the price and soon”.
Iran has told mediators Qatar and Oman that it was not ready for negotiation on a ceasefire regarding the raging war while it is under Israeli attack, raising fears of a wider conflict.
