An Israel retaliation against over 180 missiles fired by Iran may lead to a spike in oil prices and a consequential surge in the prices of diesel and Premium Motor Spirit (PMS) popularly called petrol in Nigeria, according to oil and gas experts and economists.
On Tuesday, October 1, Iran launched hundreds of ballistic missiles on Israel in response to the death of at least seven high-ranking Hezbollah leaders including, Hassan Nasrallah, following Israelโs strike on the proscribed groupโs underground headquarters in Beirut, Lebanon.
On the recent attack, Israel weighs how to retaliate against Iranโs barrage of missiles. Israel led by Prime Minister Benjamin Netanyahu may target Iranโs nuclear facilities and oil infrastructure.
Israel has begun ground operations and wagging an extensive bombing campaign in the southern suburbs of Lebanonโs capital, Beirut.
A former Israeli Prime Minister, Naftali Bennett, advocated for a strike on Iranโs nuclear facilities to โFatally cripple this terrorist regime.โ
But United States President, Joe Biden is pushing Israel to take mild retaliatory actions on Iran. The US also warned Israel against targeting Iranโs nuclear facilities.
At a meeting with the G7, Biden said, โAll seven of us agree that they have a right to respond, but they should respond in proportion.โ
Back in April this year, Tehran launched hundreds of missiles and drones in April while Israel responded with airstrikes on defense systems at an Iranian airbase.
Oil prices have already risen by about 11 per cent due to the tension in the Middle East. Benchmark oil, Brent Crude price rose from $70.22 per barrel on October 1 to $78.05 per barrel on October 6, 2024, according to checks by NewsNGR.
On Monday, October 7, 2024 Brent rose to $79.85 per barrel at 11:24 a.m. GMT, signaling a one-month high compared to the $71.84 per barrel traded on September 9, 2024.
West Texas Intermediate (WTI) crude price surged on Monday to $76.33 per barrel compared to $68.71 per dollar traded on September 9, 2024.
Analysts are of the opinion that a potential escalation of the conflict between Israel and Iran would have severe and far-reaching financial impacts on global markets.
Some experts have also explained that Iran is a major player in global oil production, adding that escalation of the conflict could disrupt oil supply routes, particularly the Strait of Hormuz, a major crude oil transit chokepoint.
The Director of the African Centre for Share Development, Prof. Olu Ajakaiye, told NewsNGR that oil prices may spike nearly $90 per barrel if Israel attacks Iranโs oil installations.
โPeople are still speculating and they are afraid when the Israelis attack Iran, it will disrupt the actual supply of crude and it may raise to $88 and if it persists maybe $90 per barrel,โ Ajakaiye said adding โI will be surprised if Israel strike oil facilities disregarding its impact on its ally, US.โ
The expert explained that Nigeria will benefit from high crude oil prices if the war, however, he argued that Nigeria has already committed a large portion of its crude oil to settle debts.
He said, โThe implication is in two dimensions. The first is that a rise in the price of crude will have a positive effect on our foreign exchange earnings provided we can produce more than our commitment to our creditors. The revenue prospect will not be as positive as we expect due to the debt taken with crude oil.
โBut because of the arrangement of selling crude oil at international price to local refiners, if the price of crude goes up, what we are going to see is a challenge in terms of increase in domestic prices of PMS in Nigeria. There will be pressure to raise the domestic price of fuel.โ
The professor said the effect would be multi-dimensional. According to him, the implication of the rise in international price will worsen the current economic hardship.
Ajakaiye said, โThis will now cause complications for everybody because domestic crude is supplied to local refiners at international price using the naira equivalent. Higher diesel and PMS prices will lead to a rise in the cost of production.
โIn my judgment, a surge in crude oil price may not be as beneficial as it would have been due to systemic factors like loans that will be settled with crude and low crude oil production.โ
He said that the federal government may be forced to renegotiate prices of supplying crude to local refiners if the cost of PMS and diesel goes out of the reach of businesses and households.
An economist and Senior Partner at SPM Professionals, Paul Alaje said the economic implication of an Israel-Iran war may be severe for not just global energy but Nigeria.
Alaje said, โWith the action taken by Iran to drop missiles on Israel, this action may lead to a full-scale war. The whole world has been trying to avoid a full-blown war in the Middle East. We know what is going on in Eastern Europe, the war between Russia and Ukraine.
โIn a matter of days or weeks, Israel may retaliate as expected by Iran. When that happens, chances are high that this may lead to a full-blown war. If it happens like this, there may be a global supply shortage of oil because Iran is a major producer of oil.โ
Explaining the implication for Nigeria, he said crude oil prices will rise leading to more revenue for the federal government. But he lamented that the wider implication will be a spike in the cost of energy including PMS, and diesel.
He said, โWhat does this mean for Nigeria and nations with oil and relative peace? The price will surge, leading to more revenue inflow for the Nigerian authorities and others.
โPMS, Diesel, and other refined products may increase as well. Inflation may go higher than we already have. Revenues to the government are expected to go up. The government will decide who will pay the increase in petroleum products prices if this happens.โ