Turning commodity tailwinds into economic stability

An unfortunate series of events has led to a dangerous and deeply regrettable escalation in the Middle East. Beyond the immediate humanitarian implications, the region’s central role in global energy markets means that instability there carries significant consequences for the world economy – particularly for emerging markets and the global south. The Middle East accounts for roughly one-third of global crude oil production and hosts critical maritime routes through which a large portion of the world’s energy supply flows. Any disruption therefore reverberates far beyond the region itself.

While difficult to predict how long current tensions will last, it is worth examining the possible fallout for one of Africa’s largest economies (Nigeria, of course) and, more importantly, the levers required to properly harness any latent opportunities.

The focus, here, will be on how well-positioned we are as an economy to benefit from emerging geopolitical tailwinds – in particular, what kind of foundation our current policy matrix has established.

First, some context. The recent attacks involving Iran, Israel and US military assets across the region have already triggered fairly predictable reactions in global markets; US and European equities retrenched (as of 2nd March), while commodities – particularly oil – rallied sharply. Roughly 20 percent of global oil supply passes through the (recently closed) Strait of Hormuz, a narrow shipping corridor between Iran and Oman. This route handles approximately 17–18 million barrels of oil per day, including exports from Saudi Arabia, Iraq, Kuwait, the UAE and Iran itself.

At the same time, Saudi Arabia remains the world’s largest oil exporter, producing roughly 10–11 million barrels/day, while Iran – despite sanctions – produces c. 3 million barrels/day. Any escalation that threatens infrastructure, shipping routes or regional stability tends to tighten supply, resulting in increased futures prices.

As such, Brent crude and Nigeria’s Bonny Light benchmark have reacted strongly. While detrimental to oil-import-dependent African countries (Egypt in particular), this does represent a significant (albeit oil-import-dependent and unexpected) fiscal windfall opportunity for Nigeria – if managed properly.

The question is whether we are structurally positioned to capture the upside.

Alongside Angola, Nigeria remains Africa’s largest oil producer, exporting roughly 1.3-1.5 million barrels/day in recent months (1.7 million barrels/day including gas condensates). Crude oil still accounts for around 85-90 per cent of Nigeria’s export earnings and roughly 50 percent of government revenues, depending on price assumptions.

Given this profile, one might be forgiven for expecting higher Brent and Bonny Light prices to translate directly into an improved macro, serving as a much-needed release valve for everyday Nigerians contending with rising living costs.

The reality, however, is more nuanced.

While a sustained increase in oil prices would certainly lead to higher foreign exchange inflows – assuming production levels remain stable – there would need to be a confluence of policy factors for any real economic relief.

First (and most obviously), Nigeria must maintain – and ideally increase – its production profile.

Over the past decade, Nigeria’s oil output has been constrained by a combination of factors: pipeline vandalism, oil theft, under-investment in upstream infrastructure and regulatory uncertainty. Production at times fell below 1.1 million barrels per day in 2022, far below OPEC quotas.

Recent improvements in security and operational oversight have helped production recover toward 1.4–1.5 million barrels per day, but sustaining this level remains essential.

Second is the question of trade balance and currency management.

Recent actions by the Central Bank of Nigeria (CBN) in buying USD (effectively defending the dollar) and stabilising foreign exchange markets should be viewed through this lens. While controversial to some, intervening to stabilise the exchange rate was presumably designed to reduce excessive import demand. Existing policies have resulted in a current trade surplus (Nigeria recorded a trade surplus of about $10.8 billion in 2025), alleviating NGN pressure. In short, the existing policy framework was implemented to ensure any increase in oil-driven FX inflows strengthens reserves rather than immediately leaking out through higher imports.

In practical terms, this is about preserving the current account balance. If higher oil prices are accompanied by an uncontrolled surge in import demand, the resulting FX outflows could quickly offset the benefit. Managing this balance is critical.

Another factor that often complicates the macro picture is the election cycle.

Historically, election periods have coincided with increased fiscal spending, expansionary monetary conditions and heightened pressure on the currency. Alongside inherent political uncertainty, these typically lead to dampening investor confidence and, subsequently, capital flight and exchange rate volatility.

Ensuring any oil windfalls are not consumed by short-term political spending remains one of the key structural challenges facing the Nigerian economy. A positive note on this is the CBN governor’s message in February 2026 cautioning against excessive spending in order to maintain economic stability.

Additionally, CBN’s Monetary Policy Rate (MPR) has steadily increased in recent years in response to rising inflation (following the 50bps rate cut in February, this is currently 26.5% vs. 18.5% in May 2023), which currently sits well above the bank’s historical comfort zone. Tightening monetary policy serves two key purposes. First, it helps anchor inflation expectations by reducing liquidity in the system. Second, higher interest rates attract foreign portfolio inflows given relative yield dynamics, which can help stabilise the currency in the short term.

The downside, of course, is that tighter monetary conditions also increase borrowing costs for businesses and households.

For Nigerians, the net effect of higher oil prices is therefore predicated on whether the resulting increase in government revenue and FX inflows can offset the inflationary pressures currently being tackled through monetary tightening.

If managed well, stronger reserves combined with disciplined monetary policy could gradually reduce exchange rate volatility – which in turn would help stabilise prices for imported goods.

Perhaps the most important development in Nigeria’s economic landscape is the growing alignment between monetary, fiscal and trade policies.

Over the past several years, Nigeria has struggled with fragmented policy signals. Currency controls, subsidy regimes and inconsistent regulatory frameworks created uncertainty for both domestic and foreign investors.

Recent reforms – including subsidy removal, FX market adjustments and tighter monetary policy – suggest a gradual movement toward a more congruent economic framework. While the adjustment process has been painful for most households – even today’s improved c. N1,350:$1 (vs N1,500 in March 2025) official rate is a long way away from the c. N460:$1 we saw in May 2023 (I said official, not parallel market) – the longer-term objective appears to be creating a macroeconomic environment capable of absorbing external shocks more effectively.

Higher oil prices alone cannot solve structural economic challenges. However, when combined with stronger FX reserves, improved production discipline and more coherent macroeconomic policy, they can create a powerful stabilising effect.

For global investors, stability is typically more important than rapid growth. Countries able to demonstrate the ability to manage commodity windfalls responsibly tend to attract longer-term capital.

Should Nigeria maintain policy consistency in the current direction, geopolitical tailwinds may inadvertently provide us with an opportunity to strengthen and build on our foundations. The ultimate benefit would be reduced economic volatility for households and businesses across the country – a more stable currency, more predictable inflation and a stronger platform for long-term investment.

Samuel Adeleke Adelaja: Head, Partnerships at Airtel Business Africa; Investment Director at Airtel Africa.