With the glaring side effects of the war in the Middle East on the economy of many countries, including Nigeria, it has become necessary for the Nigerian government at the federal and state levels to put in place interventionist policies to mitigate those effects before they get out of hand. With fuel prices already rising as well as other products and services, the government should go beyond mere promises to monitor prices and provide assurance that the economy would withstand global shocks, to prevent an escalation of dislocation that would gradually affect the well-being of Nigerians.
The example of the Oyo State government granting N10,000 monthly to its workers to cushion the effects of emerging inflation is instructive and, given its limited coverage of civil servants in the state, needs to be improved upon by other states and the federal government. It is equally notable that the federal government stands to gain higher revenue from the sale of crude oil, prices of which have spiked from about $70 per barrel to $100 per barrel. While that is subject to the capacity of government to produce the oil in sufficient quantity, and within the quota approved by the Organisation of Petroleum Exporting Countries (OPEC), government nevertheless faces the challenge of meeting that quota to take advantage of the prevailing situation; and to come up with policy measures to pass the gains to the ordinary Nigerians who are already being strangulated economically.
The raging crisis in the Middle East, which metamorphosed into a military conflict between the United States of America and Israel on one side and the Islamic Republic of Iran on the other, has become an issue of great global concern, especially as it affects the global economy. With bombs, missiles and drones flying everywhere, destroying military facilities, homes and hospitals, one issue that has had severe ramifications for the global economy is the shipping of crude oil through the Strait of Hormuz, which has, over the years, been under Iran’s control. This has thus become a key factor in the direction the war has taken, with its numerous economic implications on the global crude oil market. Global trade statistics, which indicate that at least 20 per cent of global trade in crude oil passes through this strategic Strait of Hormuz, are quite significant.
Because of this conflict, the passage of oil-bearing ships through the Strait has been constrained, with a number of these ships damaged by artillery and missiles from Iran.
Next to Venezuela and Saudi Arabia, Iran has the third-largest reserve of crude oil globally and is thus a key player in the global crude oil market. With the inherent danger in transporting crude oil through the Strait of Hormuz, global oil supply has been severely constrained, with oil prices skyrocketing such that a barrel of crude that stood at about $70 before the crisis is now over $100. This has had ripple effects on the prices of premium motor spirit and other commodities in virtually every country. In reaction to this global skyrocketing of prices of oil and other commodities, as it affects the ordinary Nigerian, the federal government has stated it would monitor prices in the Nigerian economy in relation to this ongoing conflict.
Government reaction which came through Mr. Tunji Bello, the Executive Vice Chairman and Chief Executive Officer of the Federal Competition and Consumer Protection Commission (FCCPC), indicated the activation of a nationwide monitoring process to track pricing patterns across critical sectors of the economy with an intent that the commission will keep a close watch on developments in the domestic market to ensure that the international crisis does not become an excuse for arbitrary or coordinated price hikes. In the view of Tunji Bello, the emerging pricing adjustments are a temporary market reaction.
While this may sound good and pleasant, the question is how far the administration can go in addressing the concerns of the ordinary Nigerian, given that prices are already distorted due to the war’s effects.
Similarly, the Governor of the Central Bank of Nigeria, Olayemi Cardoso, said Nigeria’s ongoing macroeconomic reforms have positioned the economy to withstand potential shocks arising from escalating tensions in the Middle East. The question is: how sacrosanct is this assertion, again considering the inflationary trend in the economy now?
It may be true, as Cardoso explained, that the reforms implemented over the past two years have strengthened Nigeria’s macroeconomic buffers and placed the country in a better position to navigate the external shocks arising from the crises. As Cardoso pointed out, the government has, to some extent, eradicated distortions in the foreign exchange market, improved capital inflow and strengthened external reserves.
However, what kind of monitoring process has the administration put in place to check the escalation of prices of basic commodities in the market? Currently, the price of many basic commodities has gone up since the Middle East crisis started. Transportation costs have virtually doubled. The price of a litre of premium motor spirit (PMS) has risen from about N800 per litre before the crisis to about N1,336. In the hinterlands across the country, the price has even exceeded N1,700 per litre. This affects other commodity prices that depend on transportation to get to the market. What has the FCCPC done to engage the major suppliers of petroleum products to minimise this escalation of prices? Has the government engaged Dangote Refinery, for example, on how to manage the increase in price of their products?
As much as price increases, especially of petroleum prices, are temporary, as rightly asserted by the FCCPC boss, the fact remains that the pains of the increases are excruciating and many Nigerians are currently going through tough times in their quest to survive and eke out a living for themselves and their families. Can the federal government, through the FCCPC, add any value in this regard? A thinking and responsive government should by now be activating options to minimise the adversity confronting Nigerians due to the war.
One area that can be explored is introducing fuel subsidies for as long as the Middle East crisis persists. After all, the government is earning more money from the Middle East crisis with oil prices currently over $100 per barrel, exceeding the 2026 budget benchmark price of about $65 per barrel, as well as the pre-crisis price of about $70 per barrel.
The government needs to share part of the $30 extra income with the populace since this was not budgeted for, and the government should go about this with a mind to stabilise prices of every other commodity in the market. The mere promises by the FCCPC appear to be a case of playing to the gallery. As soon as the crisis ends, the government can then terminate the temporary subsidy regime and allow market forces to operate. This is, however, only an option. The government can consider other viable options.
With issues concerning the passage of oil tankers through the Strait of Hormuz still largely unresolved, it is not certain how long this crisis will last and the government should take steps to address the needs of its people. It will not be acceptable for the government to simply hope that the warring parties will resolve the crisis soon. The government has a duty to act decisively in mitigating adverse effects even when these are not occasioned by its policies directly.
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