Israel-Iran tensions could fuel inflation, interest rates, CPPE warns

The Centre for the Promotion of Private Enterprise (CPPE) has raised alarm over the escalating geopolitical crisis between Israel and Iran, warning that the development could lead to surging energy prices, higher inflation, interest rate pressures, and widespread economic disruptions.

The warning, issued in a statement by CPPE’s Director and Chief Executive Officer, Dr. Muda Yusuf, on Sunday, June 15, 2025, highlights both the risks and opportunities the conflict poses to Nigeria’s already fragile economy.

According to Yusuf, the Israeli-Iranian conflict has “added a troubling dimension to the challenges of an already floundering global economy,” which is still grappling with the effects of the Russian-Ukrainian war, the protracted Israel-Hamas violence, and global trade tensions sparked by the protectionist policies of the Trump-era United States.

Dr. Yusuf noted that energy costs, especially crude oil, have already begun to rise sharply, with global crude oil prices climbing from $65 per barrel to $75 per barrel within days of the conflict’s outbreak — a 15% increase.

“This has immediate and far-reaching implications,” he stated. “Prices of petroleum products such as petrol, diesel, jet fuel, and gas will surge globally, including in Nigeria. These increases will raise production, transportation, and logistics costs, thereby exerting upward pressure on inflation.”

He added that Nigeria’s inflation, already high, could worsen due to increased energy prices, as energy costs are a core driver of both production and consumer prices in the country.

“Cost pressures will be passed to final consumers, depending on the level of consumer resistance,” Yusuf explained. “There is also a global inflationary effect, meaning Nigeria could suffer from imported inflation as well.”

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Yusuf also warned of an impending hike in interest rates, as monetary authorities in Nigeria and across the world may adopt tighter policies to curb inflation.

“Rising inflation typically forces central banks into a more hawkish monetary stance,” he said. “This could push interest rates higher, increase the cost of credit, and potentially discourage private investment. For Nigeria, this would place renewed strain on businesses already battling rising costs and FX volatility.”

Additionally, he said higher global interest rates could limit foreign portfolio inflows to emerging markets like Nigeria, putting more pressure on the country’s foreign exchange reserves and the naira.

Despite the challenges, CPPE noted some potential benefits if the conflict persists — particularly for Nigeria’s oil-dependent economy.

“Higher crude oil prices mean higher foreign exchange earnings, especially if Nigeria can ramp up production,” Yusuf said. “The oil sector remains the country’s largest foreign exchange earner and contributes about 50% of government revenues.”

He added that improved oil revenues could support Nigeria’s fiscal consolidation efforts and help reduce the budget deficit, while also stabilizing the foreign exchange market through improved liquidity.

Moreover, upstream oil and gas investors may see better returns, which could incentivize further investments in the sector.

Dr. Yusuf concluded by urging the Nigerian government to remain vigilant and proactive in navigating the unfolding crisis.

“The risks and benefits are real, and much will depend on how well the country manages its oil production, debt, inflationary trends, and interest rate responses. Strategic economic planning and disciplined fiscal management are now more critical than ever,” he said.