THE Nigerian government will experience a huge leap in net external foreign reserves to $55 billion if the conflict between the United States and Iran lasts until the end of March, some economic watchers have said.
Already, global oil prices have surged beyond $80 per barrel, driven by disruptions to supply chains across Middle Eastern countries due to the conflict.
The external reserves specifically help stabilise the currency, pay for imports, and service external debts. They also act as a buffer to ensure the country meet its international financial obligations and maintain stability in times of economic uncertainty.
Nigeria’s net external reserves surged by 772.18 per cent in two years to $34.80 billion at the end of 2025, from $3.99 billion in 2023, according to Olayemi Cardoso, governor of the Central Bank of Nigeria (CBN).
“The naira will strengthen in the short term, supported by higher oil price and the external reserve is expected to rise to $55 billion by the end of March if the tension continues, “the chief executive officer of the Financial Derivatives Company (FDC), Bismarck Rewane, said.
He stressed, “CBN needs to pay closer attention in terms of money supply, exchange rate, and ensure that leakages and political spending pre-2027 elections have to be well managed to ensure a stable macroeconomic environment.
“For the consumer, the crude for naira swap will hedge the fuel pricing not to rise further, but it could rise to N1,200 per litre,” he said.
The Chief Economist at SPM Professionals, Paul Alaje, also warned that petrol prices could climb to N1,000 per litre and push up inflation figures if the conflict is not effectively managed.
“While crude oil goes up, we all need to check the impact on our economy. The first thing you see is high inflation, because as crude oil goes up, the cost of PMS, diesel, and Jet-A1 will also follow.
“As that is going on, about nine per cent has already attracted more cost for PMS in Nigeria, and by the end of April, we project that if the war is not properly managed, it might get to ₦1,000 plus for PMS in Nigeria,” he added.
According to the economist, if PMS is ₦1,000 per litre, the nation could imagine what diesel price and cost of flight tickets would be. “It will affect the poor, the middle class and, of course, the rich,” he stated.
Analysts also noted that global economic chains in aviation, logistics, and oil and gas would be affected by disruptions to flights and the associated movement of goods and services currently witnessed in Gulf countries.
Notably, escalating tensions among Iran, the United States and Israel could also offer some relief for Nigeria’s foreign exchange market, even as inflationary pressures threaten household welfare, according to Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise.
In a policy brief titled “Implications of the Iran–US–Israel Conflict on the Nigerian Economy,” obtained by The ICIR, Yusuf said the deepening geopolitical crisis has injected fresh uncertainty into the global economy, with oil prices reacting upward amid fears of supply disruptions.
For Nigeria, where crude oil accounts for more than 85 per cent of export earnings and roughly half of government revenue, higher oil prices could significantly alter macroeconomic conditions.
“Higher oil prices typically strengthen Nigeria’s current account balance and improve foreign exchange liquidity,” Yusuf said. “This could reduce short-term pressure on the naira and reinforce investor confidence,” he added.
He noted that in recent years, exchange rate stability had been closely linked to oil receipts and capital inflows. Improved export earnings, he explained, could boost gross external reserves, enhance liquidity in the foreign exchange market, and reduce speculative pressure on the currency.
Yusuf, however, cautioned that geopolitical crises often trigger global risk aversion. He pointed out that during periods of heightened uncertainty, international capital tends to migrate toward safe-haven assets such as United States Treasury securities and gold, while emerging and frontier markets frequently suffer portfolio outflows during such episodes.
Given Nigeria’s relatively shallow capital market and dependence on foreign portfolio inflows, heightened volatility in global financial conditions could offset part of the gains from stronger oil receipts. “The net exchange rate impact will depend on the balance between stronger oil inflows and potential capital reversals,” he said.
For Nigeria, each increase in crude oil prices translates into higher export receipts and fiscal revenues. Immediate gains could include stronger foreign exchange inflows, improved external reserve buffers, and increased allocations from the Federation Account Allocation Committee to federal, state and local governments.
Yet Yusuf cautioned that the extent of revenue gains would depend heavily on Nigeria’s production performance.
“Current output has fluctuated between 1.4 million and 1.6 million barrels per day, below installed capacity and vulnerable to oil theft, pipeline vandalism and persistent underinvestment in upstream infrastructure,” he noted.
“Without sustained improvements in production efficiency and security, Nigeria may not fully optimise any price windfall,” he warned.
While higher oil prices could boost government revenues and reserves, Yusuf argued that the immediate domestic consequences might be less favourable.
Nigeria operates a deregulated downstream petroleum regime, meaning that international crude price increases impact domestic fuel prices. Rising crude prices are therefore likely to translate into higher pump prices for petrol, diesel and aviation fuel, he further said.
He identified multiple risks exposure to fuel price hike, including rising transportation and logistics costs, higher food distribution expenses, and escalating input costs for manufacturers.
He stressed that energy prices have a pronounced multiplier effect in Nigeria’s inflation dynamics, particularly since transportation and food account for a large share of consumer spending.
“With purchasing power already fragile, sustained increases in fuel prices could intensify cost-of-living pressures and deepen poverty levels,” he said.
The ICIR reports that oil and gas companies could benefit from improved earnings expectations and renewed investor interest in energy-linked assets. Higher crude prices may support profitability and bolster valuations in the sector.
Conversely, manufacturers, aviation operators, logistics firms and consumer goods companies could see margins squeezed by higher energy and operating costs. Heightened global uncertainty could also weaken foreign portfolio flows into equities and fixed-income instruments.
Overall, Yusuf said the ultimate impact of the Iran–US–Israel conflict on the naira and the broader economy would hinge on the duration of the crisis and the strength of domestic policy responses. “The effects will be both positive and adverse, depending on how long the tensions persist and how effectively Nigeria addresses its structural vulnerabilities,” he stated.
Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.