By Adebayo Ahmed | On the 28th of February 2026, the war between USA/Israel and Iran broke out, with immediate devastating consequences for people living in Iran and the rest of the Middle East. But the crisis is also having rippling effects across the world, including in Nigeria. The reasons are copious. First, Iran is a significant producer of crude oil and natural gas.
As at 2020, Iran accounted for 3.5% of all crude oil production[1](5th largest) and 5.9% of natural gas production (3rd largest). The war in Iran therefore implies a disruption to a significant global supply of crude oil and natural gas. Although the country may have been technically under sanctions by the United States, its oil and gas probably still flowed to some international markets.
Beyond the significance of its own production, Iran has also closed the Strait of Hormuz. The strait is a narrowing of the waterway between the Gulf of Oman and the Persian Gulf, which on one side is bordered by Iran. In essence, if you want to sail to Dubai, Abu Dhabi, Doha, Dammam, or Bahrain, you have to pass through the Strait of Hormuz. As you may have guessed, these locations are all very important for the global supply of crude oil and natural gas. According to some estimates, nearly 20 % of all crude oil and natural gas bound for global markets passed through the strait in 2024[2].
Figure 1. Brent Crude Prices. Source: Marketwatch
The impact on prices for crude oil and natural gas has been significant. In the last month, Brent Crude prices have risen from about $69 a barrel to over $100 a barrel and are still climbing as shown in Figure 1 above. Natural‑gas prices have similarly spiked. This has created global uncertainty with no clarity on how high energy prices will go, (as even the planned release of crude oil from the strategic reserves of G7 countries can only be a stop-gap measure).
The impact of the war in the region, however, is not limited to crude oil and natural gas. A significant share of the global fertilizer supply also passes through the strait. According to the Fertilizer Institute, nearly 50 % of urea and sulphur originate from countries that use the strait for exports. A substantial share of ammonia and phosphates also passes through the Strait of Hormuz, implying that fertilizer prices are expected to spike as well. Fertilizer is of course a key input into food production which implies that food prices should rise as well.
Also, some Gulf countries impacted by the war have in recent times become engines for many global services. A significant share of global air traffic passes through the Gulf countries, and Dubai in particular had become a major hub for various commodity‑trading services.
Importantly, there is a lot of uncertainty on how long the crisis will last. Will it last a few days after which things return to “normal”? Will it go on for weeks or months? Are these market disruptions long-term in which we should expect to see energy prices remain high for the near future or will this end in a couple of days with prices retreating to their previous levels? No one quite knows.
So, what do these shocks mean for Nigerians? The first obvious channel is the direct impact on energy prices. Higher prices of crude oil directly translate to higher prices for petrol, diesel, kerosene, and aviation fuel. For instance, in the past two weeks, fuel prices have jumped by almost 30 % according to published fuel prices from the Dangote Refinery and NNPC Limited. These price increases are significant for Nigerians because they raise transportation and home‑energy production costs. According to the 2023/2024 General Household Survey, diesel, petrol, and gas were all among the top 10 non‑food expenditure items for the average household. Shocks to fuel prices were also listed by the average household as the second most important shock after food‑price shocks. Access to electricity and transportation were similarly listed as the two most important constraints to business, and both of these will be impacted by the energy‑price shocks.
The second dimension will likely be through the impact on fertilizer prices. Fertilizer is a key input into agricultural production. Higher fertilizer costs mean higher costs for producers. Since most agricultural production in Nigeria is done by small‑scale households, this typically translates to lower fertilizer use, which will likely reduce agricultural output. Given that the planting season usually starts in April, this could not have come at a worse time. Small‑scale farming households are also less likely to have the financial buffers to cope with these higher prices.
Nigeria is also still exposed to global food prices with commodities such as wheat and rice part of the domestic food mix. A rise in global food prices, due to the fertilizer disruptions or other transport cost disruptions, will likely also put upward pressure on domestic food prices.
At this point you might be thinking: but Nigeria (the country) is a crude‑oil and natural‑gas producer. Nigeria is also, more recently, a significant urea and ammonia producer. This is indeed true. Nigeria stands to gain from higher crude‑oil and natural‑gas prices. Higher prices mean more income for each barrel of crude oil sold or each cargo of liquefied natural gas exported. More exports of urea and ammonia also mean more income for exporters. Overall, both should increase foreign‑exchange inflows, leading to relatively lower interest rates and borrowing costs for the government than would have been the case without the crisis in the Middle East. Increased forex flows should also have a positive effect on the external reserves and the value of the Naira. It would be even better if Nigeria could expand actual production of crude oil, natural gas, and fertilizer products quickly, but it is clear the country does not have such spare capacity at the moment. Nevertheless, the price effect will still be a nice bonus.
However, good for Nigeria (the country) and good for Nigerians (the people) are not exactly the same thing. The benefits of higher crude oil and natural gas prices will largely flow to the government and a few oil and gas companies. The government, which has been strapped for cash in recent times (despite increase in gross FAAC revenue), is likely to see a windfall. The yet-to-be passed 2026 budget assumed a crude oil price benchmark of around $65 a barrel. With crude oil now above $100, that should imply an unexpected cash boost. Something similar can be expected from natural gas exports as well. Even with pledged barrels and constrained production, this should have a positive impact on budget implementation, assuming the legislators will not lose their heads and jack up the benchmark price. The benefits from higher fertilizer product prices will likely flow to the government and fertilizer companies.
Ordinary Nigerians will however be left with higher costs for energy, fertilizers, transportation, and possibly food (which will not be good news as the country is just coming out of prolong period of elevated food inflation). This will not be the first energy shock to hit Nigeria in recent times. In 2022, the start of the Russia‑Ukraine war caused a similar energy shock, combined with a food‑price shock. At the time, crude oil prices hovered around $110 a barrel for almost six months. Unfortunately, the windfall was limited because of low oil production and the little available was wasted on fuel subsidies. Whether the gains from higher global energy prices trickle down to ordinary Nigerians this time around depends on the policy actions taken. What are these policy actions?
First, the direct pipeline from higher crude‑oil income to people’s pockets needs to be improved. This can be viewed within the social protection framework. As part of the petrol subsidy reform implemented in 2023, the government already had a policy framework for this. Unfortunately, the implementation of the policy appears to have failed woefully. The agenda is still correct, though. In this instance, the government needs to take some of the financial “gains” from the removal of fuel subsidies and redirect them to the poorest through social transfers. The policy framework exists; it just needs effective execution. Hopefully, there will be better policy implementation this time.
Secondly, concerted policy action to get fertilizer into the hands of small‑scale households in advance of the planting season needs to happen now. We have had some relative successes on that front in the recent past. The digital fertilizer subsidy programme under former Agriculture Minister Akinwunmi Adesina, and parts of the CBN’s Anchor Borrowers Programme, were relatively good at using technology and mobile‑phone connectivity to deliver fertilizer and fertilizer subsidies to farmers. More innovation is needed, of course, but the foundation is there, and the outcome needs to be clear: farmers must be able to access fertilizers before the planting season.
Finally, there is a more medium‑term potential to position Nigeria as a strategic alternative to manage the risks from exposure to choke points in the Middle East. Nigeria has the potential, with some political will, honesty, and common sense, to mobilise investments into its oil and gas sector. Even if the crisis in the Middle East ends, the sense that risk mitigation is important is firmly planted, and smart alternatives can position themselves as that alternative. What this means in practice will be left for oil and gas specialists to decide, but the opportunity is there and Nigeria should be strategic enough to seize it.
There are also a couple of policy options that will be tempting but should definitely not be attempted. The first is price controls. Politicians tend to love price control policies because they give the impression of short‑term wins, especially as Nigeria heads into the election season. Energy price controls in this instance would imply a return of fuel subsidies. As crude oil prices, and domestic fuel prices rise, this will become very tempting to politicians. This should be avoided at all costs, as the country has only recently seen the fiscal consequences of such policies regardless of intentions. The mathematics of fuel subsidies are the same regardless of how high the prices goes and social transfers are almost always a better and fairer response than fuel subsidies.
Secondly, it would be unwise to treat the current energy price hike as permanent. Although there is significant uncertainty about how the crisis in the Middle East will evolve, it would be wise to err on the side of caution. This means that the federal and state governments should not start preparing budgets that assume a crude oil benchmark of $100 a barrel. When there is this amount of uncertainty, it is always wise to err on the side of caution and manage the windfall afterwards, if there is one. They should not alter their fiscal consolidation agenda through tax mobilisation. For monetary authorities, it similarly implies that they should treat the events as a temporary shock and not change their policy objective of managing inflation. There may be some room, if possible, to allow the realised foreign exchange inflows to strengthen the Naira as a means to limit the effects of imported inflation but even this should be seen as temporary.
Profiting from wars and the pain and suffering of others is not something anyone should celebrate. Still, Nigeria must ensure that the economic consequences of the war are properly managed and that the global shocks do not lead to an economic crisis at home, either now or when the war ends. And of course, the policy agenda to reduce Nigeria’s vulnerability to external shocks should be amplified. This vulnerability is still driven by the dominance of crude oil, natural gas, and its derivatives like fertilizer in Nigeria’s export basket. If we want a Nigeria that is more resilient to these global shocks then changing that dominance of crude oil in exports needs to be high on the agenda. Not by reducing crude oil exports but by increasing the exports of other things, preferably labour-intensive manufactured products.
[1] US Energy Information Administration (EIA) - https://ourworldindata.org/explorers/natural-resources?tab=table&time=latest&country=USA~RUS~NOR~GBR~DEU~SWE~CHN~IRN&Resource=Oil&Metric=Production&Count=Total
[2] US Energy Information Administration (EIA) - https://www.eia.gov/todayinenergy/detail.php?id=65584
