The Centre for Promotion of Public Enterprise (CPPE) has warned that the ongoing hostility from the United States of America and Israel against Iran may result in higher fuel pump price and escalate manufacturing and logistic costs.
The Centre, in a Sunday statement by its Chief Executive Officer Dr. Muda Yusuf, also warned of increased transportation/logistics costs and higher food distribution expenses, as energy costs have a strong multiplier effect on Nigeria’s inflation dynamics.
It argued that as Nigeria operates a deregulated downstream petroleum regime, higher international crude prices, which the war may induce, would directly result in higher petrol, diesel and aviation fuel costs, a situation it warned, could further affect the nation’s fragile economy.
“Since transportation and food prices account for a significant share of consumer expenditure, with purchasing power already fragile, sustained increases in fuel prices could intensify cost-of-living pressures and deepen poverty levels,” it added.
The centre noted that while government revenues may rise as a result of likely increase in global oil price, household welfare in Nigeria could, however, deteriorate, thereby creating a divergence between fiscal gains and social outcomes.
CPPE also believed the implications of the crisis on the nation’s Capital Market could also be grave. It argued that while oil and gas equities could benefit from improved earnings expectations and stronger investor interest in energy-linked assets, manufacturing, aviation, logistics, and consumer goods companies could face margin compression due to higher energy and input costs.
It predicted a decline in foreign portfolio flows and an increase in short-term volatility in equity and fixed-income markets if global financial tightening intensifies.
CPPE, however, believed the situation presents an opportunity for disciplined fiscal consolidation, while stressing the need to save part of any oil windfall in stabilisation mechanisms, reduce fiscal deficits, moderate public debt accumulation and prioritise capital expenditure over recurrent spending.
“Without prudent management, temporary revenue gains could encourage unsustainable spending patterns, thereby increasing vulnerability when oil prices eventually decline,” it added.
The Centre called on the government to strengthen oil production capacity by intensifying anti-theft operations and incentivising upstream investment to maximise output within OPEC limits.
It also advised on the need to channel excess revenues into stabilisation and sovereign savings frameworks, and accelerate refining capacity, by deepening domestic refining to reduce vulnerability to imported refined products.