Lagos: An economist, Dr Muda Yusuf, says the outbreak of war between Israel and Iran portends a combination of risks and upsides for the Nigerian economy amidst the challenges of an already floundering global economy.
Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), made this known in a statement on Sunday in Lagos.
He noted that economies worldwide grapple with elevated geopolitical tension triggered by the Russian-Ukraine war and the Israel-Hamas conflict.
The expert said that the risks of the conflict included energy cost escalation, high interest rate implications, and money supply growth.
He noted that a major driver of energy prices in Nigeria was the global crude oil price. With the outbreak of the Israeli-Iranian war, crude oil prices surged to 75 dollars per barrel from 65 dollars per barrel a week before.
“This is a 15 per cent jump within days and has obvious implications for petroleum product prices globally.
“Economies worldwide, including Nigeria, 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,” he said.
Yusuf added that there was a risk of high monetary growth with an increase in oil sector revenue.
He noted that the money supply increased in the Nigerian economy as oil revenue increased because of the monetisation of oil receipts.
He says this can pose additional inflation and exchange rate depreciation risks.
The economist noted that this might provoke a tighter monetary policy stance, resulting in difficult business credit conditions.
Yusuf, however, said there is a historically positive correlation between crude oil prices, Gross Domestic Product (GDP) growth, and stock market performance.
He said the Nigerian stock market outlook was likely to be positive in the current context.
As for the upsides for the Nigerian economy, Yusuf asserted that should the current conflict persist and escalate, the surge in crude oil prices would impact foreign exchange earnings, with oil being the biggest earner for the country.
“This would even be more impactful if output performance improves.
“Crude oil price has surged to $75, 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 foreign exchange liquidity and ultimately the stability of the naira exchange rate,” he said.
Yusuf added that the development would also positively impact the country’s revenue, as the oil sector currently accounts for about 50 per cent of government revenue.
According to him, an improvement in crude oil price would, therefore, significantly impact government revenue.
He added that revenue improvement would positively impact fiscal consolidation and, hopefully, moderate the growth of the fiscal deficit.
“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,” Yusuf said.
