The outbreak of war between Israel and Iran has raised concerns about the potential impact on the Nigerian economy.
According to Dr. Muda Yusuf, Director/Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), the development portends a combination of risks and upsides for the economy.
Dr. Yusuf notes that the conflict is likely to lead to an escalation in energy costs, with crude oil prices surging to $75 per barrel from $65 per barrel.
“This would have far-reaching implications for petroleum product prices globally, including Nigeria.
“The resulting inflationary pressures would likely drive interest rates up, making credit conditions more difficult for businesses.”
According to Dr. Yusuf, the increase in energy costs would impact production costs, logistics costs, and the cost of power generation, leading to higher inflation.
This, in turn, would prompt monetary authorities to respond with tighter monetary policies, potentially resulting in higher interest rates.
However, Dr. Yusuf also notes that the conflict could bring some benefits to the Nigerian economy.
“The surge in crude oil prices would increase foreign exchange earnings, positively impacting the country’s foreign reserves and ensuring better forex liquidity.
“This would ultimately lead to stability in the naira exchange rate. Additionally, an improvement in crude oil prices would have a significant impact on government revenue, supporting fiscal consolidation and moderating the growth of the fiscal deficit.”
Dr. Yusuf adds that the high oil price would post better returns for investments in the oil and gas sector, making it a positive development for upstream oil and gas investors.
According to Dr. Yusuf, the Israeli-Iran war presents a complex scenario for the Nigerian economy, with both risks and opportunities emerging.
While the conflict could lead to higher energy costs and inflationary pressures, it could also bring benefits in terms of increased foreign exchange earnings and government revenue.
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