Nigeria’s economy is once again under major pressure due to rising global oil prices related to geopolitical tensions. While higher crude prices often suggest economic gains for an oil-producing country, Nigeria’s situation is more complex. The country stands at a crossroad where it can benefit from increased revenue, yet remains exposed to serious economic risks that come with structural weaknesses.
At the heart of Nigeria’s vulnerability is its economic structure. The country relies heavily on oil, which accounts for over 70% of government revenue. This dependence means that any change in global oil prices has a direct and significant impact on national income. Paradoxically, though, Nigeria imports most of its refined petroleum products.
The recently constructed Dangote refinery near Lagos – believed to be the largest industrial project in Africa’s modern history, with refining capacity of 650,000 barrels of oil per day – is helping offset the imbalance. Overall, however, Nigeria’s industrial base remains weak.
Manufacturing and large-scale production are underdeveloped, making the country dependent on imports for many essential goods. This further exposes the economy to external shocks such as global supply chain disruptions. Compounding these challenges is the country’s limited crude oil production capacity. Despite high global prices, Nigeria has struggled to increase output beyond 1.4 to 1.7 million barrels per day due to issues including oil theft, pipeline vandalism, and underinvestment in the sector. As a result, the country cannot fully take advantage of favorable market conditions.
Despite these structural challenges, rising oil prices bring positive effects. One immediate benefit is increased government revenue. Higher crude oil prices translate to more money flowing into Nigeria’s Federation Account, which is shared among federal, state, and local governments. This creates more fiscal space for public spending, including infrastructure, social programs, and servicing of debt.
Additionally, oil prices are currently above Nigeria’s 2026 budget benchmark of $64.85 per barrel. This means the government earns surplus revenue, which, if managed properly, could strengthen fiscal balances and improve external reserves. Increased oil earnings also support foreign exchange inflows. With more dollars entering the economy, Nigeria’s foreign reserves can grow, helping to stabilize the naira in the short term.
There is also a potential boost to economic growth. Higher oil revenue can lead to increased government spending, which stimulates economic activity. This is often referred to as the “commodity boom” effect, where rising commodity prices drive short-term growth. However, such growth is usually not sustainable unless supported by broader economic reforms.
On the other hand, the negative impacts of rising oil prices are significant and often more visible to Nigerian citizens. One of the most pressing issues is inflation. Since the onset of the Iran conflict, petrol prices in Nigeria have risen by about 35%. This increase is driven by higher global crude prices, Nigeria’s dependence on imported fuel, and the weakening of the naira.
Higher fuel prices have a ripple effect across the economy. Transportation costs rise, which in turn increases the cost of goods and services. Businesses face higher production costs, and these are passed on to consumers. At the same time, global fertilizer shortages linked to geopolitical disruptions have pushed up food production costs. This has led to higher prices at the grocery store and higher cost of living.
For many Nigerians, this translates to reduced purchasing power and increased hardship. Food inflation and energy costs are rising simultaneously, making it more difficult for households to meet basic needs. The situation is particularly concerning given Nigeria’s existing challenges with poverty and food insecurity.
Exchange-rate volatility is another risk. Although higher oil revenue supports the naira, other factors offset this benefit. Global uncertainty often leads investors to move their funds to safer markets, resulting in capital flight. At the same time, direct foreign investment and portfolio inflows may decline due to perceived risks. This creates pressure on the exchange rate despite increased oil earnings.
There is also the issue of fiscal discipline. Nigeria has a history of mismanaging oil windfalls. Increased government spending without investments in long-term development has been part of the problem. If this pattern continues, the current revenue boost could be wasted, leaving the country more vulnerable in the future.
Different sectors of the economy are affected in different ways. In the energy sector, upstream activities such as oil exploration and production benefit from higher prices. However, the downstream sector suffers due to higher import costs for refined products. In agriculture, rising fertilizer prices increase production costs, leading to lower output and higher food prices. Manufacturing is also affected, as higher energy costs reduce competitiveness, and supply chain disruptions limit access to raw materials. The financial sector faces increased uncertainty, with potential risks such as rising non-serviced loans.
Looking ahead, Nigeria’s fate depends largely on how global events unfold. In a short-term Iran conflict lasting three to six months, oil prices may stabilize between $90 and $110 per barrel. In this scenario, Nigeria could enjoy moderate gains, while inflation pressures gradually ease. However, if the conflict persists, oil prices could exceed $130 per barrel, increasing the risk of a global recession. This would create a difficult situation for Nigeria, with high inflation, currency instability, and potentially reduced demand for oil.
A major disruption to global oil supply would cause an economic downturn throughout the world. While Nigeria might experience significant revenue gains, these would likely be accompanied by extreme inflation and rising social tensions.
To navigate these challenges, Nigeria must adopt sound policies. On the fiscal side, it is important to save excess revenue in sovereign wealth funds and reduce dependence on oil income. In the energy sector, expanding domestic refining capacity is crucial to reduce reliance on fuel imports. Monetary policy should focus on controlling inflation and stabilizing the exchange rate. More important, structural reforms are needed to diversify the economy into agriculture, manufacturing, and services.
Ultimately, Nigeria’s situation highlights a deep economic paradox. Rising oil prices bring increased revenue, but also higher costs and inflation due to import dependence. Weak production capacity limits the country’s ability to fully benefit, while global instability discourages investment. This means Nigeria experiences economic gains and vulnerabilities at the same time.
The challenge, therefore, is not just to benefit from high oil prices, but to use this opportunity to build a more resilient and diversified economy.
(Yusuf Yusuf Hassan – BIG Media Ltd., 2026)
