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