This brief presents an analysis of the potential macroeconomic implications of the US-Israel-Iran conflict on Nigeria. The results of the exposure of Nigeria to the conflict from counterfactual simulations suggest that Nigeria is highly vulnerable to the ongoing geopolitical tension involving the United States, Israel, and Iran. Evidence from trade exposure metrics, disruption simulations, and the Strait of Hormuz scenario shows that Nigeria faces risk across several strategic commodities -crude oil, refined petroleum, wheat, and urea fertiliser. These products are central to macroeconomic stability, inflation, and household welfare in the country. Specifically, the estimated composite risk indicator for Nigeria is 0.816. This vulnerability was found to be driven by very high exposure to crude oil, refined petroleum, wheat, and urea fertiliser. This evidence suggests that the potential effect of the conflict on Nigeria is not limited to one market, but cuts across energy, food imports, agricultural inputs, and living costs.
The evidence from the simulation indicates that the conflict is likely to present serious challenges with upside risks to headline inflation, which was still elevated at 15.06 per cent in February 2026 compared with 15.10 per cent in January 2026, while the 12-month average headline rate remained at 21.03 per cent. The price environment remains fragile, and a fresh external shock to the fuel, food, andfertiliser markets would still hit the economy hard. In addition, this vulnerability is made more serious by the presence of the pre-existing weakened welfare position of the country. For example, the World Bank Nigeria Development Update (NDU) report of October 2025 shows that average consumption in Nigeria fell by 6.7 percent between 2019 and 2023, while poverty rose from 40 percent in 2019 to 56 percent in 2023. The report also projected it to reach 61 percent, equivalent to 139 million Nigerians by 2025. The report also shows that poor Nigerian households spend up to 70 percent of their total consumption on food. This implies that any external shock that significantly raises fuel, wheat, or fertiliser prices is most likely to have a disproportionately large welfare effect on the average Nigerian.
The counterfactual simulation results demonstrate that the crude oil exposure of Nigeria is very high with respect to the conflict. In the crude petroleum trade results, Nigeria recorded an exposure strength of 30,780,811.7, a dependency on the United States of 0.465, a dependency on Iran of 0, and a betweenness score of 0.216. The crude oil loss simulation shows that Nigeria would lose 14,299,191.72 if the United States were removed from the trade network, while loss from Iran removal was zero. This evidence indicates that the crude oil risk of Nigeria is driven overwhelmingly by its concentration on the United States-linked trade channel rather than by direct trade with Iran.
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Further analysis of the Strait of Hormuz scenario suggests that the crude oil network position of Nigeria remains broadly unchanged, with no major reduction in weighted indegree or total trade. This means that the direct physical disruption effect on crude oil trade in the model was limited. However, crude oil remains important because it shapes export earnings, foreign exchange availability, fiscal revenue, and exchange rate stability. Even if the shock does not directly reduce crude trade flows, it can still affect Nigeria through global price volatility and uncertainty in oil revenue. For example, if foreign exchange earnings become more volatile, the naira may come under pressure. This increased pressure can raise the domestic cost of imports and thus amplify inflation in other sectors of the economy. In light of this, it is argued that the crude oil channel still matters for inflation even when the direct household consumption effect was found to be very limited. This is particularly important because the gains from macroeconomic stabilization have not yet translated into broad improvements in livelihood in Nigeria (World Bank NDU, 2025). Thus, external earnings volatility could quickly feed into welfare pressures through inflation and the weak fiscal space in the country.
The counterfactual simulation results show that refined petroleum exposure is one of the strongest channels through which the geopolitical crisis could affect domestic prices in Nigeria. In the refined petroleum trade results, Nigeria recorded an exposure strength of 3,701,370.6, a dependency on the United States of 0.598, a dependency on Iran of 0, and a betweenness score of 0.325, the highest in the network and in Africa. The refined petroleum loss simulation shows that Nigeria would lose 2,212,644.23 if the United States were removed, while the Iran-related loss remained zero. The Strait of Hormuz scenario also shows that the weighted indegree of Nigeria in refined petroleum declined from 18,179,938.96 to 17,111,081.17. This implies a loss of 1,068,857.79, or about 5.9 per cent. This magnitude would have a significant influence on domestic prices because refined petroleum feeds directly into petrol, diesel, aviation fuel, transportation, power generation, and logistics, given the recent deregulation of the oil sector in the country.
It should be noted that the CPI structure in Nigeria is likely to make this expected impact stronger. This is because,Transport carries a weight of 10.7 percent, while Housing, Water, Electricity, Gas and Other Fuels carry 8.4 percent of the CPI. Together, these categories account for 19.1 percent of the CPI basket of the country.
Since fuel also enters many sectors indirectly through logistics, generator use, and distribution costs, this implies that the effective inflation impact may be broader than these direct weights suggest. In this regard, a refined petroleum shock arising from global conflict or a Strait of Hormuz disruption, could therefore generate a sizeable pass-through into transport fares, household energy costs, logistics costs, and business operating expenses. In addition, it can also generate second effects on the headline inflation through its core components. Moreover, the poverty effects of such a shock would likely be severe, given the evidence that poor households in Nigeria spend a disproportionate share of their budgets on basic consumption.
The counterfactual simulation results indicate that wheat exposure is another major vulnerability for Nigeria. It should be noted that this matters greatly for inflation because wheat is a major input into flour, bread, noodles, semolina, pasta, and other staple foods. Moreover, food accounts for 40.0 per cent of the CPI basket. Furthermore,restaurants and accommodation services account for 12.9 per cent, which implies that food-related input shocks would also affect prepared meals and food service prices across the country.
Further analysis of the inflation data confirms that this food channel remains highly relevant in Nigeria. Although food inflation declined sharply over the previous year, it rose from 8.89 per cent in January 2026 to 12.12 per cent in February 2026, which indicates that food prices are still highly sensitive to supply and cost disturbances. In that context, a geopolitical shock that raises international wheat prices or disrupts supply could quickly feed into bread prices, flour-based foods, food services, and broader household food costs. Moreover, food inflation is especially harmful for poor households because their expenditure is heavily concentrated on food items. Additionally, evidence from the World Bank NDU report (2025) shows that the average prices of the food items most consumed by the poor increased fivefold between 2020 and 2024. This is compared with three-fold for overall food products and over two-fold for the full CPI basket. This means that a wheat shock would not merely raise average food prices, but would likely intensify a highly unequal inflation burden that falls disproportionately heavier on poor and vulnerable households. This evidence reinforces the argument that geopolitical shocks to wheat supply could be amplified by the existing food market rigidities of Nigeria.
The simulation further indicates that urea fertiliser is the most direct channel through which Nigeria faces combined exposure to the vagaries of external shocks arising from both the United States and Iran. In the urea trade results, the evidence reveals that Nigeria recorded an exposure strength of 1,058,621.1, a dependency on the United States of 0.478, a dependency on Iran of 0.157, and a betweenness score of 0.182. In addition, the urea loss simulation result shows that Nigeria would lose 506,358.77, if the United States were removed and 166,131.95 if Iran were removed, which gives a combined loss of 672,490.72. Furthermore, the counterfactual simulation results of the potential impact of the Strait of Hormuz disruption scenario make this situation even more severe. Specifically, the evidence shows that the weighted indegree of Nigeria in urea falls from 171,874.74 to 5,664.17. This implies a decline of 166,210.57, or about 96.7 per cent of import side exposure,which is a very large shock that would have major implications for domestic food production. Urea is a critical agricultural input, so a supply disruption would increase fertiliser prices. This will reduce affordability for farmers, weaken crop productivity, and raise the cost of domestic food supply.
This matters a lot because fertiliser shocks can feed into food inflation even when they do not enter the CPI basket directly as consumer items. This is plausible given that their effect is transmitted through production costs and food availability. In Nigeria, since food accounts for 40.1 per cent of the CPI basket, any fertiliser-induced increase in farm costs could have broad downstream effects on inflation. The recent rebound in food inflation makes this risk especially important for policymakers to be very vigilant and swift in taking action, given its current fragility. Furthermore, high costs of imported inputs and machinery, poor transport and storage infrastructure, and insecurity in agricultural regions have remained among the major constraints to domestic food production in Nigeria. In addition, the import barriers to some key production inputs, such as fertilisers, raise production costs and hurt competitiveness. This implies that a Hormuz-related fertilizer shock would not occur in isolation but would interact with existing structural bottlenecks in the food system of Nigeria, creating conditions that would cause an increase in the likelihood of stronger and more persistent food inflation in the country.
The analysis in this study suggests that the likely impact of an escalation in the US-Israel-Iran conflict, especially under a Strait of Hormuz disruption scenario, would extend beyond direct commodity price increases in Nigeria. The evidence demonstrates that the immediate effect would come through higher prices for refined petroleum, wheat, and urea fertiliser. This would likely feed directly into major components of the CPI, such as Food (40.1%), Transport (10.7%), Housing, Water, Electricity, Gas and Other Fuels (8.4%), and Restaurants and Accommodation Services (12.9%). This also means that the persistence of the shock would directly raise fuel costs, transport fares, food prices, and household living expenses. However, the analysis also points out that the total effect would likely be larger because food and energy shocks would also generate second-round effects. Higher fuel and food prices would increase distribution costs, production costs, and service prices across the economy, pushing up core inflation in addition to headline inflation. This would make inflation more persistent and harder to reverse if the conflict persists.In addition, evidence suggests that lowering food inflation in Nigeria requires both macroeconomic stabilization and better access to imported food and inputs, alongside improved infrastructure and reduced trade restrictions. Thus, one of the implications is that a disruption scenario could raise headline inflation first through direct food and energy effects and then through wider spillovers into core inflation, production, and services in the country
The analysis also points out that the presence of strong second-round effects in Nigeria has important implications for monetary policy if the conflict persists. If food and energy shocks begin to feed into core inflation, the ability of monetary authorities to control inflation becomes more constrained. This is because the initial inflationary impulse would come from the supply side and imported cost shocks. This implies that a Hormuz-related shock would complicate inflation management and force a difficult trade-offbetween price stability and support for growth, employment, and credit. In addition, this impact could be more severe in the presence of inflationary pressure thatremains higher than its target, very volatile, and uneven. Furthermore, food inflation may remain especially elevated, and persistent monetary policy tightness would berequired alongside measures to alleviate supply constraints for domestic production and imports.
The recent transition to an inflation-targeting framework by the CBN underscores how demanding inflation control had become, even before the new geopolitical commodity shock from the ongoing conflict. This implies that a conflict-driven shock would most likely weaken monetary control. These challenges can increase inflation persistence and make the management of inflation more difficult.
The analysis of the simulation results suggests that the welfare implications of the ongoing conflict would be severe if the geopolitical tension persists. Rising inflation would erode real household incomes, especially for low-income households that spend a large share of their income on food, transport, and energy. The poverty effect would operate through both the severity and the incidence of poverty. Thus, the adverse impact would push poor households further below minimum consumption thresholds and send more vulnerable households below the poverty line.
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Evidence from this study provides a strong case for temporary and targeted government intervention in Nigeria. In this light, policy response should focus on the areas where shocks are most likely to affect households, inflation dynamics, and productive sectors. First, in the petroleum market, priority should be given to stabilizing refined fuel supply and reducing excessive pass-through to pump prices. In the food system, the findings imply that measures should focus on protecting wheat-dependent supply chains and limiting the transmission of international food price shocks to consumer markets. In agriculture, the results suggest that targeted intervention is needed to stabilize fertiliser availability and reduce the impact of urea supply disruptions on domestic food production. Second, there is a strong case for social cushioning if the conflict persists. Social protection coverage declined from nearly one in five Nigerians in 2018/19 to just 6 per cent by 2023, while spending on social protection remained only 0.14 per centof the GDP, less than one-tenth of the global average of 1.5 per cent. Nigeria already has the foundations of a scalable system through the Social Registry, covering 86 million people and linked to digital IDs and payment systems.
In conclusion, the analysis shows that the ongoing geopolitical tension involving the United States, Israel, and Iran poses a serious economic risk to Nigeria. Nigeria's exposure is concentrated in refined petroleum supply exposure, heavy wheat import concentration, and urea fertiliser supply. The Strait of Hormuz scenario further demonstrates that Nigeria's most immediate additional vulnerability lies in refined petroleum and fertiliser disruption, not in crude oil export. This is because the most exposed commodity channels feed directly into the largest CPI categories. Thus, the likely effect would be a combination of higher local fuel prices, stronger food inflation, more expensive transport, rising energy costs, and worsening household living expenses. The impact of the conflict would not be limited to these direct effects. A disruption scenario would likely trigger a second-roundeffect of relative price effects. This could create conditions where higher food and energy prices spill into core inflation, feeding back to the headline inflation for the second time and eroding real household incomes. On this basis, there is compelling reason to support the need for temporary government intervention to cushion the negative effects on inflation, welfare, and poverty in Nigeria and,most importantly, any credible response should combine fuel and food market stabilization with shock-responsivesocial protection.
Dr. Rislanudeen Muhammad
Former Chief Economist, Bank of Industry and
Member, Daily Trust Board of Economists
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