Conflict Escalation Between US, Israel, and Iran Intensifies: Nigeria Should Brace for Tougher Days Ahead, Warns Former NACCIMA Leader Dele Oye

Rising tensions between Israel and Iran are causing significant turmoil in global energy markets, with the potential for disruptions to the Strait of Hormuz leading to sharp increases in oil prices, exacerbating inflation, and slowing down economic growth worldwide.

The Strait of Hormuz is a critical waterway, carrying approximately one-fifth of the global oil supply, and any prolonged disruption could lead to crude prices surpassing $100 per barrel, thereby intensifying pressure on both developed and emerging economies.

Dele Kelvin Oye, former President of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, has warned that Nigeria must prepare for more challenging economic conditions due to the conflict, which is fueling global oil volatility, highlighting the country's long-standing reliance on crude exports and imported fuel, and threatening to increase inflation and pressure on households.

The current energy crisis is being described as the worst since the 1970s, with the Strait of Hormuz almost shut down, leading to rapidly rising oil prices that could climb even higher, resulting in slower growth and higher inflation globally.

For Asia, which relies heavily on oil from the Hormuz region, the situation poses an existential risk, while for other countries, it serves as a reminder of the world's continued dependence on oil, emphasizing the need for policymakers to prioritize energy security as a structural imperative rather than just a crisis response.

The disruption to the Strait of Hormuz is likened to a blockage of the jugular vein of global trade, potentially leading to a sharp decline in oil production in countries such as Iraq, Kuwait, and Saudi Arabia, as well as refinery shutdowns and increased costs due to ships taking longer routes around Africa.

The ripple effects of the disruption are substantial, with the potential for Asian currencies to weaken, factories to ration energy, and food prices to surge, as farming relies heavily on diesel, underscoring the need for policymakers to plan beyond oil and protect supply chains and households.

The current crisis is considered more severe than the 2003 Iraq War and comparable to the 1973 oil shock, with prices rising faster than during the Gulf War, and the situation is further complicated by the near-total closure of the Strait of Hormuz to commercial traffic, leadership uncertainty in Iran, and refinery shutdowns across multiple countries.

Nigeria faces a paradoxical situation, where higher oil prices could lead to increased export earnings but also higher costs for importing refined fuel, and at $100 per barrel, the country could earn billions more, but production is below OPEC quotas, and budget expectations have already fallen short.

The Dangote Refinery is expected to help, but Nigeria still imports a significant amount of refined products, and fuel prices have quickly risen in response to global market spikes, potentially leading to the reintroduction of subsidies and undermining the current reforms.

Dele Kelvin Oye's message to policymakers is that windfalls must be managed carefully, and without structural reforms, higher oil prices will ultimately harm the economy more than they help.

The situation is viewed as more of a threat than an opportunity for Nigerians, as ordinary citizens are already feeling the pain of increased fuel prices, transport costs, and potential food inflation, while the wealthy may benefit from stable reserves.

The government is urged to prioritize protecting households from inflation, rather than focusing on celebrating reserve levels, and to take practical steps to mitigate the impact of the crisis on Nigerians.

Nigerians can expect to feel the effects of the crisis through a significant increase in the cost of living, with transport fares potentially rising by 20-30% and food prices by 15-25% within the next two months, leading to reduced household budgets and potential layoffs in businesses that rely on diesel generators.

Policymakers are advised to prioritize social protection, cash transfers, subsidies for farm inputs, and support for small businesses to soften the blow of the crisis on most families, who may be forced to reduce meals, pull children out of school, or delay medical care.

The naira, which has been relatively stable, may come under pressure due to rising import costs and capital flight, potentially leading to inflation above 20% and undermining the Central Bank's credibility, with imported goods, debt servicing, and interest rates all likely to increase.

To defend the naira, the government should focus on transparency, reserve management, and credible monetary policy, including regulating public sector borrowings and placing a cap on them to prevent excessive debt.

The government is recommended to take a two-pronged approach, combining urgent relief measures with structural reforms, including stabilizing fuel supply through crude-for-product swap arrangements with the Dangote Refinery within the next 90 days.

Additional measures could include expanding cash transfers to vulnerable households, imposing temporary restrictions on non-essential imports, and maintaining a tight monetary policy to control inflation while supporting trade finance for critical inputs.

Over the medium term, within about two years, deeper reforms will be necessary, including the privatization and rehabilitation of state-owned refineries, accelerating the rollout of solar home systems, and saving oil revenue windfalls in the Nigeria Sovereign Investment Authority's sovereign wealth fund.

Targeted subsidies and support programs for farmers could also help boost agricultural production and ease pressure on food prices, and for policymakers, crisis management must be paired with long-term reforms, transparency, and political will.