THE Israel-Iran war has already added a troubling dimension to the challenges of an already struggling global economy, and portends several risks for the Nigerian economy, according to renowned economist Muda Yusuf.

Yusuf, who is the director and chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), made his position known on the evening of Sunday, June 15.

The risk exposure comes at a time when economies around the world are currently grappling with elevated geopolitical tension triggered by the Russian-Ukraine war, the Israel-Hamas conflict, as well as the disruption from the United States President Donald Trump’s imposed tariffs.

On Friday, June 13, Israel launched an air strike, hitting Iran’s main nuclear enrichment facility at Natanz, as well as its air defences and long-range missile facilities, The ICIR reported.

The attack immediately caused global crude oil prices to jump over seven per cent for the first time in over four months.

In his statement, Yusuf highlighted a combination of risks and upsides it could have for the Nigerian economy.

Downsides for Nigeria’s economy

– Energy cost escalation

A major driver of energy prices in Nigeria is the global crude oil price, and following the attack, crude oil prices surged to $75 per barrel from $65 per barrel a week before, he noted.

“This is a 15 per cent jump within days.  This has obvious implications for petroleum product prices globally.  Economies worldwide [Nigeria inclusive] would witness a surge in the price of petrol, diesel, jet fuel, gas, and related products in the near term.

“This would have far-reaching implications for many economies and businesses.
Implications,” Yusuf pointed out.

– Inflation

As energy cost is a major factor in the Nigerian inflation equation, it impacts production cost, logistics cost, transportation costs, and the cost of power generation, he said.

These costs are eventually passed on to final consumers, depending on the degree of their resistance.

“There is also a global inflation dimension. Energy prices have global inflationary implications. Therefore, there is also an expectation of imported inflation in the unfolding geopolitical scenario,” the CPPE boss added.

– Interest rate

Yusuf also pointed out that high inflation drives interest rates as the monetary authorities respond to the inflation outcomes of current geopolitical headwinds.

He said a tighter monetary policy regime is expected in Nigeria and other monetary jurisdictions, as the expectation is that economies around the world may experience renewed pressures on interest rates.

“Higher global interests could adversely impact portfolio flows with implications for foreign reserves,” he noted.

– Profit margins

The renowned economist further noted that a combination of high energy costs, elevated inflationary pressures, and a spike in interest rates is all headwinds that could undermine the profitability of businesses in the economy.

He said specifically that investors in the non-oil sector are likely to be more vulnerable in the present situation.

He further stressed that 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.

– Money supply growth

Yusuf added that there is also a risk of high monetary growth with an increase in revenue from the oil sector.

He explained this to mean that money supply increases as oil revenue increases because of the monetisation of oil receipts, which 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,” he maintained.

Upsides for Nigeria’s economy

On the positive side, Yusuf noted that if the current conflict persists and escalates, the Nigerian economy might record upsides in some areas.

– Forex inflows

The surge in crude oil prices would impact foreign exchange earnings, oil being the biggest forex earner for the country.

He said this would be even more impactful if output performance improves.

“Crude oil price has surged to $75 per which is about 15 per cent  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,” Yusuf explained.

– Revenue effect

He noted oil sector currently accounts for about 50 per cent of Nigeria’s revenue, and that 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,” the CPPE boss said.

– Oil and gas investment effect

He also pointed out that 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,” he added.

Risk for the global growth outlook

According to Yusuf, the global economy will be adversely impacted by this new geopolitical crisis.

He noted global stock markets reflected this ominous outlook as the Dow Jones, S&P, and Nasdaq stock markets trended downwards.

“There is a flight by investors towards ‘haven assets’ as global uncertainty heightens,” he said.

He noted, however, that in Nigeria, there has historically been a positive correlation between crude oil prices, gross domestic product (GDP) growth, and stock market performance.

“The outlook for the Nigerian stock market is therefore likely to be positive in the current context,” Yusuf anticipated.