The American–Iran War and the Nigerian Economy: Vulnerabilities, Transmission Channels, and Policy Recommendations

Abstract

The eruption of direct military confrontation between the United States and the Islamic Republic of Iran in February 2026 and the subsequent closure and contestation of the Strait of Hormuz produced one of the sharpest geopolitically induced energy shocks of the past two decades, with Brent crude surging from approximately $72 per barrel to a peak near $120 per barrel within weeks. This study examines the transmission of that shock into the Nigerian economy, a country whose fiscal architecture remains heavily dependent on crude oil receipts even as its domestic fuel market has been substantially reorganised by the 2023 removal of the petrol subsidy and the emergence of the 650,000 barrels-per-day Dangote Petroleum Refinery. Adopting a descriptive, ex-post-facto research design anchored in secondary macroeconomic data drawn from the Central Bank of Nigeria, the National Bureau of Statistics, the Nigerian National Petroleum Company Limited, and reputable international financial institutions, the article traces the principal channels through which the conflict transmitted to Nigeria: the federation oil revenue windfall channel, the domestic pump-price and inflation pass through channel, the exchange-rate and external-reserves channel, the shipping, insurance, and trade-logistics channel, and the investor-confidence and capital-flow channel. The findings indicate that Nigeria experienced a paradoxical short-run outcome in which higher international crude prices simultaneously swelled federally distributable oil revenue while elevating headline inflation, which climbed from 15.06 per cent in February 2026 to 15.93 per cent by May 2026, driven substantially by transport and food sub indices. The naira's relative stability, underpinned by central bank reforms and a build-up of external reserves to over $50 billion, partially cushioned the pass-through of imported inflation, while persistent shortfalls in crude allocation to the Dangote refinery limited the extent to which Nigeria could convert its position as Africa's largest crude producer into domestic price stability. The study concludes that Nigeria's vulnerability to exogenous Middle Eastern conflict is structural rather than incidental, rooted in mono product export dependence, import-dependent refined-fuel logistics in the short transition period, and shallow buffers against imported food and energy inflation. Policy recommendations centre on accelerating feedstock security for domestic refining, deepening the Excess Crude Account and sovereign wealth buffers, diversifying non-oil export receipts, and strengthening social protection instruments to shield vulnerable households from imported price shocks.