Three weeks ago, I noted that the Gulf conflict had delivered Nigeria a windfall with a sting. The sting, it was argued, lay not only in rising domestic fuel prices and inflationary pressure, but in the more durable danger that a temporary fiscal gain would be consumed rather than saved. Events since then have confirmed the first fear. They are now confirming the second.
The crisis has deepened considerably. What began as a terms-of-trade shock triggered by hostilities in the Gulf has evolved into something more consequential: the near-total closure of the Strait of Hormuz, the world’s most important energy chokepoint. The International Energy Agency (IEA) has described the disruption as the largest supply shock in the history of the global oil market, and its Executive Director has called it the greatest threat to global energy security. Roughly 20 million barrels per day of crude oil and petroleum products passed through the Strait in 2024. Traffic has since been reduced to a trickle, with only limited passage granted to selected vessels.
WHERE THE CRISIS NOW STANDS
Brent crude surged well above $100 per barrel in early March, gaining more than 60 per cent from pre-crisis levels, before easing briefly when negotiations with Iran appeared possible, then rising again when those talks collapsed, and Iran’s Islamic Revolutionary Guard Corps formally declared the Strait closed. The IEA has reported that more than 12 million barrels per day of regional production have been shut in. Oil executives at CERAWeek in Houston warned that the Strait must reopen by mid-April or supply disruptions will worsen.
Some partial de-escalation signals exist. Iran has granted limited passage to select countries and allowed humanitarian and fertiliser shipments. Saudi Arabia is rerouting some exports through the Yanbu pipeline. But these are narrow relief valves. The Economist Intelligence Unit cautions that even a ceasefire will not restore shipping confidence quickly, citing the Red Sea as precedent: traffic there has still not fully recovered from the Houthi disruptions of 2023. The insurance markets and charterers will take time to return.
The International Monetary Fund’s (IMF’s) assessment, published this week, is direct: oil-exporting countries in Africa and Latin America that can get their barrels to market stand to benefit from stronger fiscal and external positions. Nigeria qualifies in principle. The question is whether it is actually capturing the windfall and managing it wisely.
THE PRODUCTION GAP THAT LIMITS THE GAIN
Nigeria’s 2026 budget was originally benchmarked at $64.85 per barrel with a production assumption of 1.84 million barrels per day. The National Assembly has since revised the oil benchmark to $75 per barrel in the expanded budget, an implicit acknowledgement of the windfall. With Brent remaining well above that revised benchmark through most of March and into April, the directional revenue gain is real and significant, even after accounting for production constraints and committed crude volumes.
But Nigeria is not producing 1.84 million barrels per day. Actual output has averaged closer to 1.48 million barrels per day this year, about 20 per cent below target. A significant portion of what is produced remains encumbered by pre-export financing structures: public reporting based on NNPC’s 2024 audited accounts suggests obligations exceeding N9 trillion across forward-sale and pre-export structures. The net windfall reaching the Federation Account is real but meaningfully smaller than the headline price movement suggests.
THE FISCAL RESPONSE: CONTEXT AND CAUTION
Recent fiscal decisions must be assessed with care and context. The National Assembly has raised the 2026 Appropriation Act from N58.47 trillion to N68.32 trillion. The revised budget allocates N4.8 trillion to statutory transfers, N15.8 trillion to debt servicing, N15.4 trillion to non-debt recurrent expenditure, and N32.3 trillion to capital projects. The largest single component of the increase, N7.71 trillion, reflects the rollover of capital obligations from 2025 that went unfunded due to revenue shortfalls. By the National Assembly’s own account, around 70 per cent of 2025 capital projects were affected. Carrying those commitments forward is a legitimate attempt to prevent the abandonment of contracted infrastructure.
At the same time, the Senate on 31 March formally approved $6 billion in new external loans, and the Federal Government has raised N2.7 trillion via the bond market. The budget deficit now stands at approximately N31.46 trillion, a sharp widening from the N20.12 trillion projected in December 2025. With debt servicing consuming more than a fifth of projected expenditure, the structural fiscal vulnerability that higher oil prices may temporarily obscure remains intact. On a more constructive note, the activation of Executive Order 9 of 2026, which mandates the direct remittance of oil revenues to the Federation Account, should improve the traceability of windfall receipts across all tiers of government.
The harder question is one of sequencing. Higher oil prices provide a genuine opportunity to address legacy capital shortfalls. But they also present a familiar risk: allowing temporary revenue gains to anchor permanent spending commitments. The absence of a formal mechanism to set aside a share of above-benchmark revenue in a countercyclical buffer remains unaddressed. Spending and saving are not mutually exclusive, and a credible savings framework would, in turn, strengthen the case for higher expenditure in the eyes of investors and creditors.
THE STAGFLATIONARY PINCER
The human cost of this crisis is being felt most acutely at the pump. Nigeria entered the Gulf conflict with petrol priced below N800 per litre at the gantry. Reuters reported that prices hit record highs in March, with fuel costs rising by about 65 per cent from pre-crisis levels, reaching approximately N1,400 per litre in Lagos and Abuja. A partial reversal has occurred, as Dangote has reduced its gantry prices in response to some easing in crude prices, and NNPC has adjusted its retail prices downward. But the relief may be short-lived. The Major Energies Marketers Association of Nigeria reports that the import parity for Premium Motor Spirit (PMS) climbed to between N1,700 and N2,300 per litre in early April, as Brent remained elevated. If Dangote’s gantry price adjusts to reflect import parity, the recent relief reverses. Diesel, which powers generators, trucks and most industrial equipment, has similarly reached record levels.
These numbers carry a multiplier effect that reaches well beyond the pump. Nigeria’s minimum wage stands at N70,000 per month. A commercial motorcycle operator consuming around three litres a day spends roughly N108,000 monthly on fuel at N1,200 per litre, more than the entire statutory minimum wage. Small businesses running generators face diesel bills that have risen sharply with every rise in crude prices, compressing already thin margins. Transport fares have risen across the country, food prices are adjusting upward, and the disinflation that had brought headline inflation to 15.06 per cent in February 2026 is now under serious threat. Real disposable incomes, particularly for the urban working poor, are being compressed from multiple directions simultaneously.
The Central Bank of Nigeria finds itself in a particularly uncomfortable position. Cost-push inflation from the supply side makes rate cuts difficult to justify on grounds of price stability, yet weaker real household incomes are pulling in the opposite direction. That is a classic stagflationary bind. Fiscal expansion into such an environment, financed partly by additional external borrowing, risks amplifying the very inflation dynamics the CBN is working to suppress.
THE HARDER QUESTION: WHAT IF THE WINDFALL FADES?
Commodity booms driven by geopolitical disruption are inherently temporary. Scenarios modelled by the Dallas Federal Reserve and others suggest prices would ease materially if the Strait reopened within 1 to 2 quarters. The more probable outcome is a negotiated de-escalation and a price correction that could be sharper and faster than markets currently expect.
If that correction arrives while Nigeria’s expanded budget commitments remain in place, the consequences are predictable: the structural deficit widens, debt servicing costs press harder against a contracted revenue base, and capital projects face the same implementation shortfalls that left 70 per cent of the 2025 capital budget unfulfilled.
This is precisely the pattern the Excess Crude Account was designed to prevent. At its height in the mid-2000s, the ECA accumulated close to $20 billion, providing a buffer that helped Nigeria weather the 2008 global financial crisis. It was gradually depleted through revenue-sharing disputes, federation pressures and incremental spending commitments. By the time the next downturn arrived, the buffer had largely gone. The lesson is not that any particular administration was reckless. It is that the institutional architecture for protecting windfall revenues against these predictable pressures remains insufficiently robust.
WHAT MUST CHANGE
Three things matter most at this moment. First, the executive and the National Assembly should agree on a formal mechanism to set aside a share of the above-benchmark oil revenue for quarantine. Whether through the Stabilisation Fund, a reconstructed ECA, or a dedicated sovereign buffer, money arising from a temporary price spike should build resilience, not finance permanent, recurrent commitments.
Second, the government must address the production gap. Nigeria cannot fully benefit from high oil prices while producing 20 per cent below its own budget assumption. Crude theft, pipeline vandalism and chronic underinvestment in producing fields remain unresolved. Every barrel not produced is a windfall forgone, and current prices make upstream investment exceptionally attractive.
Third, the fiscal response must be calibrated against the windfall’s likely duration rather than its most optimistic projection. The crisis may persist for months or resolve within weeks. Nigeria should plan for the return to normalcy with the same urgency it applies to capitalising on the current moment.
Fourth, the foreign exchange gains deserve deliberate protection. Gross external reserves reached $50.45 billion in mid-February 2026, levels not seen in over a decade, and remained elevated into late March. That buffer should be treated as a floor to defend, not a ceiling to admire. Allowing reserves to drift back down during a period of elevated export earnings would undermine the confidence the CBN has worked hard to rebuild.
The windfall is real. The opportunity it presents is equally real. But windfalls do not last, and the institutional choices made during them do. Nigeria has been at this crossroads before, with oil above $100, revenues above benchmark, and the appetite for restraint below what the moment required. The question this crisis poses is not whether the country can benefit from higher oil prices. It demonstrably can. The question is whether it will still be better off when they fall.
Dr. Tope Fasoranti is an Economist, Banker, and Enterprise Transformation Strategist.
