Hostilities in the Gulf Region have triggered a significant terms-of-trade shock for Nigeria, presenting a dual-edged sword of increased export earnings and heightened domestic costs. Brent crude, which traded around $73 per barrel before the conflict, rapidly climbed above $117, briefly touching $119.50 intraday on March 9, 2026. Disruptions to shipping through the Strait of Hormuz and attacks on energy infrastructure in Saudi Arabia and Qatar, leading QatarEnergy to declare force majeure on LNG exports, have driven this surge. JPMorgan has warned that Brent could reach $120 if these disruptions persist.

For Nigeria, a net exporter of crude oil but not yet self-sufficient in refined products, this scenario creates a complex economic dynamic. While higher oil prices bolster export revenues, they simultaneously drive up domestic fuel costs and contribute to broader inflationary pressures. This situation echoes historical oil shocks of 1973, 1979, and 1990, and the 2007-2008 commodity boom, which provided fiscal windfalls but failed to translate into durable economic buffers or structural reforms due to how the windfalls were managed.

Nigeria's 2026 federal budget is set with a benchmark oil price of $64.85 per barrel and an assumed crude production of 1.84 million barrels per day. The current elevated prices far exceed this benchmark, promising a positive fiscal impact. This is expected to lead to directional benefits for Federation Account Allocation Committee (FAAC) allocations, federal account balances, and foreign exchange inflows. CardinalStone Research projects revenue growth for Nigerian oil producers between 12.5 per cent and 57.2 per cent if average prices range from $70 to $100 per barrel in 2026. Nigerian crude grades, such as Bonny Light, are priced off Brent, meaning global disruptions directly influence the price of every barrel Nigeria sells.

However, the net gain for Nigeria is narrower than the headline price movement suggests, especially if production remains below official targets. The pass-through to domestic retail prices has been swift. On March 2, 2026, Dangote Petroleum Refinery increased its ex-depot gantry price for Premium Motor Spirit (PMS) from N774 to N874 per litre. By March 8, the price had risen again to N995 per litre. NNPC retail outlets in Abuja saw prices around N960 per litre, with some stations exceeding N1,000 per litre. In a deregulated market, refiners price based on replacement cost and import parity. The concentration of supply, with Dangote reportedly supplying 61.78 per cent of PMS consumed in January 2026 and imports accounting for 38.22 per cent, raises questions about market power. The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) is urged to ensure the logistics chain functions properly and to address speculative behaviour that may exacerbate scarcity and supply anxiety, leading to the re-emergence of fuel queues in some locations.

The wider macroeconomic risk lies in inflation. Increased energy costs propagate through Nigeria's supply chain, affecting transport, food distribution, cold-chain logistics, small-scale manufacturing, and power generation. This cost-push inflation compresses real incomes and weakens consumer demand. This occurs at a critical juncture for Nigeria's economy, which had seen an improvement in its inflation picture through 2025, potentially allowing for a more measured monetary stance. The current fuel price shock complicates the path for the Central Bank of Nigeria's Monetary Policy Committee, presenting a stagflationary risk where rate cuts become harder to justify. A lesson from history, particularly the depletion of the Excess Crude Account (ECA) established in 2004, underscores the need for discipline. The ECA, which once held nearly $20 billion, was gradually depleted due to political pressure and revenue-sharing disputes, leaving Nigeria exposed during subsequent oil price downturns.

Building countercyclical buffers from the current windfall requires genuine political consensus across federal, state, and local authorities to set aside a portion of above-benchmark revenues. Without this discipline, Nigeria risks consuming a temporary gain while preserving its underlying economic weaknesses. The duration of the Gulf conflict and the government's response will ultimately determine the net effect on Nigeria's growth path. A prolonged conflict, with Brent remaining above $100 for months, would sustain inflation, weaken household demand, intensify external payment pressures, and dampen investor sentiment, leading to a paradox of rising government revenues alongside slowing growth.

To navigate this period effectively, two key actions are recommended. Firstly, 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, to strengthen future resilience rather than financing higher recurrent spending. Secondly, competition authorities and the NMDPRA must actively monitor downstream pricing and supply behaviour to ensure genuine cost pass-through and prevent market exploitation. Nigeria's vulnerability to oil shocks stems from deeper structural issues: low non-oil tax revenue, incomplete refining self-sufficiency, continued dependence on imported refined products, and shallow domestic capital markets. The Gulf conflict serves as both a windfall and a stark warning, highlighting the imperative for Nigeria to save more, discipline spending, and accelerate reforms to avoid repeating past vulnerabilities.

In a related development, Iran's Revolutionary Guards stated on March 10, 2026, that they would not allow oil shipments from the Middle East to continue if US and Israeli attacks persisted. This declaration prompted a warning from President Donald Trump of a much harsher response if Iran blocked exports. Analysts believe Iran's appointment of Mojtaba Khamenei as the new supreme leader signals a tightening hardline grip amidst the crisis.