Oil Price Surge Brings Opportunities and Risks for Nigeria Amid Iran Crisis

Nigeria may experience both gains and challenges as global oil prices surge in response to escalating tensions in the Middle East, particularly the ongoing conflict involving Iran.

International markets opened the week on a cautious note, with investors reacting to rising geopolitical uncertainty and fears of supply disruptions. Crude oil prices have climbed sharply, reaching triple-digit levels and marking one of the strongest monthly rallies in decades. The spike is largely driven by concerns over the continued closure of the Strait of Hormuz, a key global oil transit route.

Lukman Otunuga, Head of Market Research at FXTM, said current conditions are strongly supporting oil prices. He noted that the $100 mark remains a significant psychological threshold for both Brent and crude oil, as uncertainty over supply persists.

For Nigeria, a major oil exporter, higher prices could boost government revenue and provide some support for the naira. However, the benefits may be tempered by broader global economic pressures.

Otunuga explained that while the oil rally is positive for Nigeria, increased global risk aversion tied to the Iran conflict could limit potential gains for the local currency.

The geopolitical situation remains volatile. Tensions escalated after Iran accused the United States of preparing for possible military action, even as reports suggest ongoing diplomatic efforts to de-escalate the crisis. Now in its fifth week, the conflict is entering what analysts describe as a more unpredictable and dangerous phase.

Otunuga warned that mixed signals from global powers, alongside the disruption of key oil routes, could heighten market volatility as investors struggle to assess the risks.

Meanwhile, gold prices have defied expectations, dropping by nearly 14 per cent this month despite typically benefiting from global uncertainty. Analysts attribute the decline to a stronger US dollar and reduced expectations of interest rate cuts by the Federal Reserve.

Attention is also focused on the upcoming US Non-Farm Payrolls (NFP) report for March, which is expected to offer insight into the strength of the American economy. Forecasts suggest a modest recovery in job growth, with about 65,000 new jobs anticipated following a contraction in February.

Otunuga noted that the data could influence Federal Reserve policy expectations at a time when rising energy costs are already complicating the global economic outlook.

Currency markets have also reflected the uncertainty, with the Japanese yen weakening as the dollar strengthens. The USD/JPY exchange rate has climbed above 160 for the first time since July 2024, a level that has historically prompted intervention by Japanese authorities.

Otunuga added that any such intervention could trigger sharp movements in the currency market, especially given Japan’s dependence on oil imports from the Middle East.

As the situation evolves, investors are expected to remain cautious, closely monitoring geopolitical developments, economic indicators, and fluctuations in commodity prices.