A windfall with a sting: What the Gulf region conflict means for Nigeria’s economy

The hostilities in the Gulf Region have delivered a classic terms-of-trade shock to Nigeria. Brent crude was trading at about $73 per barrel on the eve of the conflict.

It moved above $84 within days, climbed into the low 90s by the end of the week, and on Monday, 9 March, surged above $117, briefly touching about $119.50 intraday.

Shipping through the Strait of Hormuz, which normally carries about one-fifth of global oil and gas flows, has been severely disrupted.

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Attacks on major energy infrastructure in Saudi Arabia and Qatar have forced QatarEnergy to declare force majeure on liquefied natural gas (LNG) exports. JPMorgan has warned that Brent could reach $120 if disruption persists.

For Nigeria, which exports crude but is not yet self-sufficient in refined petroleum products, the transmission channels of this shock run in opposite directions.

The same event that lifts export earnings also drives up domestic fuel costs and inflationary pressure across the wider economy.

Deja vu: A film Nigeria has seen before

There is an unmistakable sense of deja vu about this moment. The oil shocks of 1973, 1979, and 1990, and the 2007 to 2008 commodity boom, all produced fiscal windfalls for Nigeria.

Yet none translated into durable buffers or deep structural reform.

Windfalls were largely spent rather than saved, and when prices eventually fell, the country was left exposed.

That history should shape today’s response. Higher oil prices will help Nigeria in the short term. The real question is whether the country will finally use a temporary gain to reduce a permanent vulnerability.

The upstream revenue gain

Nigeria’s 2026 federal budget is benchmarked at $64.85 per barrel, with a crude production assumption of 1.84 million barrels per day. With Brent now well above that benchmark, the fiscal effect is clearly positive.

Even after allowing for production costs, royalties and joint venture obligations, the directional benefit to Federation Account Allocation Committee (FAAC) allocations, federal account balances and foreign exchange inflows is real.

CardinalStone Research has projected revenue growth of between 12.5 per cent and 57.2 per cent for Nigerian oil producers if average prices range from $70 to $100 per barrel across 2026.

Nigerian crude grades, including Bonny Light, are priced off Brent, so a disruption thousands of miles away still lifts the reference price on every barrel Nigeria sells.

That said, the gain should not be overstated. Higher prices help, but Nigeria does not automatically capture the full gross uplift as fiscal revenue, especially if production remains below official targets.

The net gain is real but narrower than the headline price movement suggests.

The downstream price transmission

The pass-through to domestic retail prices has been rapid. Dangote Petroleum Refinery raised its ex-depot gantry price for Premium Motor Spirit (PMS) from N774 to N874 per litre on 2 March.

By 8 March, the gantry price had risen again to N995 per litre. Nigerian National Petroleum Company Limited (NNPC) retail outlets in Abuja moved to around N960 per litre, while pump prices at some stations moved above N1,000 per litre.

In a deregulated market, refiners and importers price on replacement cost and import parity, not on the historical cost of old inventory. That explains part of the speed of the adjustment.

Even so, the concentration of supply in a small number of hands means the authorities cannot be indifferent to questions of market power.

Deregulation works best when competition is credible. Without that, consumers can face the discipline of the market without the protections it offers.

According to data from the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) for January 2026, Dangote supplied about 61.78 per cent of PMS consumed in Nigeria that month, while imports accounted for roughly 38.22 per cent. Nigeria is better positioned than a year earlier, but it is still not insulated from shocks in the international oil market.

Fuel queues, panic buying and supply anxiety

Reports from Nigeria’s downstream market indicate the re-emergence of fuel queues in some locations, especially where buyers expect another round of price increases.

Some operators may be withholding supply in anticipation of higher replacement costs, though that would require regulatory verification.

Supply anxiety is self-fulfilling: once consumers begin buying ahead of expected price hikes, queues lengthen, and the market tightens further.

That is why the NMDPRA needs to move quickly. Its role is not to reverse deregulation, but to ensure that the logistics chain is functioning properly and that scarcity is not being worsened by speculative behaviour at a moment when household budgets are already under pressure.

Inflation, price stability and the CBN’s dilemma

The wider macroeconomic risk lies in inflation. Energy costs affect almost every part of Nigeria’s supply chain: transport, food distribution, cold-chain logistics, small-scale manufacturing and back-up power generation.

A sharp rise in PMS and diesel prices feeds into the broader price level through cost-push inflation, compressing real incomes and weakening consumer demand.

This comes at a delicate time. Nigeria’s inflation picture had improved enough through 2025 to raise the prospect of a more measured monetary stance.

A renewed fuel-price shock now complicates that path. The Central Bank of Nigeria (CBN)’s Monetary Policy Committee faces a familiar problem: inflationary pressures from the supply side alongside weaker real activity.

That is a stagflationary risk. In that setting, rate cuts become harder to justify, and it would be antithetical to price stability for fiscal authorities to compound matters by spending the windfall freely into the domestic economy.

Nigeria’s net foreign exchange reserves rose to $34.8 billion by the end of 2025, while gross reserves reached $50.45 billion in February 2026.

That stronger buffer is valuable, but it should be protected, not treated as an invitation to relax.

Save for the proverbial rainy day: The case for countercyclical buffers

Nigeria is not without precedent here. The Excess Crude Account (ECA) was established in 2004 to save oil revenues above the budget benchmark.

At its height, it accumulated close to $20 billion and provided an important cushion during the 2008 global financial crisis.

But the account was gradually depleted amid political pressure and disputes over revenue sharing. By the time the next major oil-price downturn arrived, much of the buffer had already gone.

That history carries a direct lesson. Building countercyclical buffers from the present windfall will not happen by rhetoric alone. It will require genuine political consensus across the federation.

Federal, state and local authorities need to accept that a portion of above-benchmark revenues should be set aside rather than immediately shared and spent.

That is never easy in Nigeria’s fiscal politics.

But without that discipline, the country will once again consume a temporary gain and preserve the underlying weakness.

The growth outlook

The net effect on Nigeria’s growth path depends on how long the conflict lasts and how the government responds. A short disruption would leave a temporary fiscal boost and a manageable, if painful, spell of higher fuel prices. A prolonged conflict would be more damaging.

If Brent remains above $100 for months, higher fuel costs would sustain inflation, weaken household demand, intensify external payment pressures and weigh on investor sentiment.

Government revenues could rise even as growth slows.

That is the paradox at the centre of this episode, and it reflects Nigeria’s broader susceptibility to the vicissitudes of the global oil market. Oil windfalls should never be mistaken for broad-based economic progress.

Policy priorities

First, a meaningful share of the above-benchmark oil windfall should be saved.

Whether through the Stabilisation Fund, a rebuilt Excess Crude Account, or another agreed vehicle, the principle is the same: temporary gains should strengthen future resilience, not simply finance higher recurrent spending.

Second, the competition authorities and the NMDPRA should actively monitor downstream pricing and supply behaviour.

The goal is not to suppress market signals, but to ensure that cost pass-through is genuine and that tight market conditions are not being exploited through withholding or excessive concentration.

Third, structural reform must continue.

Nigeria’s vulnerability to oil shocks is rooted in deeper weaknesses: low non-oil tax revenue, incomplete refining self-sufficiency, continued dependence on imported refined products and shallow domestic capital markets.

Higher oil prices may ease pressure for a while.

They do not solve the problem.

The Gulf conflict is therefore both a windfall and a warning. Nigeria may earn more from this crisis in the short term.

But unless it saves more, disciplines spending, and pushes ahead with reform, the country will once again emerge from an oil boom with the same structural fragilities it had before.

Dr Tope Fasoranti is an Economist, Banker, and Enterprise Transformation Strategist

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