Recent escalations in the Middle East, sparked by Israeli military actions and subsequent U.S. strikes on key Iranian nuclear facilities, have prompted threats from Iran to shut down the Strait of Hormuz. This strategic waterway is a critical chokepoint for global oil trade, with approximately 20 million barrels of crude oil (nearly one-fifth of the world’s daily supply) passing through it. The oil originates primarily from major producers in the region, including Saudi Arabia, the UAE, Iraq, Kuwait, and Iran itself.

A significant share of these energy exports, particularly oil and gas are directed toward Asia, with China and India among the top buyers. In 2024, 84% of the crude oil and natural gas liquids, and 83% of LNG shipments through the strait, were destined for Asian nations including China, India, Japan, and South Korea. Notably, in Q1 2025, China alone accounted for 38% of crude oil imports passing through the channel. 

With the development, any disruption to this vital route would severely tighten global supply, heighten market instability, drive up crude oil prices and invariably, push up inflation across the globe with the Asian economies likely to be the biggest hit. 

Impact on Africa

The increase in the price of crude oil will impact positively on oil-exporting countries such as Angola and Nigeria by improving fiscal revenues, strengthening external balance, and increasing foreign exchange reserves. Conversely, oil-importing countries like Kenya, Ghana, and Ethiopia are likely to face rising fuel costs, mounting inflationary pressures, and widening current account deficits.

Impact on Nigeria

For Nigeria, the surge in oil prices is a welcome development from a revenue standpoint. Government revenue and foreign exchange earnings are expected to rise, especially as recent efforts to curb oil theft and pipeline sabotage begin to show results. According to OPEC’s latest data, Nigeria’s oil output rose to 1.544 million barrels per day in May, exceeding its production quota.

However, the upside comes with challenges. With the complete deregulation of the downstream oil sector and the full removal of petroleum product subsidies, rising international oil prices would lead to a further increase in the pump price of petroleum products. With this happening, the consumer goods sector will experience higher operating costs and any attempt to pass on this to consumers will reduce demand due to squeezed wallets. Hence, this is likely to impact their bottom-line.

For consumers, the rising cost of petroleum products, coupled with the escalating tensions in Benue state and flooding in some of the food producing states would push up prices, eroding consumer purchasing power. 

Conclusion

Nigeria’s economy is susceptible to oil prices. Therefore, the threatened closure of the Strait of Hormuz would impact crude oil prices and its derivatives, which brings more money to the government. However, this also underscores the importance of coordinated efforts between fiscal and monetary authorities to implement stabilization measures that can cushion consumers from the short-term effects of rising oil prices. Meanwhile, international bodies are likely to monitor these developments closely to prevent prolonged disruptions.