Russia launched a full-scale military invasion into Ukraine on February 24, an escalation of ongoing disagreements about Ukraine’s proposed alliance with the North Atlantic Treaty Organization (NATO). Russia’s military counterstrike into Ukraine has put the global economy in a case of one step forward, three steps backwards. The provocative move has eventually attracted several sanctions against Russia, which has blustered the global financial markets and aggravated supply chain disruptions. It has also triggered a surge in firepower and commodity prices essentially compounding existing inflation concerns. For the first time since 2014, Brent crude price crossed the $100pb threshold rising as high as $117pb.
The Russia-Ukraine war has varied implications for Nigeria. While the spike in oil price has a silver lining for the domestic economy due to the expected boost in oil revenue, rising subsidy payments remain a fundamental challenge. The import-dependent country will also be at risk of higher imported inflation, which could drive up domestic commodity prices and reverse the current decline in inflation. Nigeria’s headline inflation fell marginally to 15.6% in January 2022 from 15.63% in the previous month.
Furthermore, access to credit from the international debt market will be largely undermined as investors adopt a cautious approach due to prevailing economic uncertainties. The country is also at risk of increased debt service costs due to higher interest rates in advanced economies. There have also been significant macroeconomic outcomes, including the heightened fiscal deficit, growing debt levels, the spike in debt service payments and money supply growth which has vehemently led to depreciation of the local currency and more intense inflationary pressures.
More importantly, the cost of flour, the price of bread and other confectioneries may also take a hit and that might lead to conflict and it would have downside risks to the Nigerian economy.
Russia is known to be the second-largest producer of oil globally, the conflict in the region would disrupt oil supplies, reduce output and trigger higher prices. Already, the oil price is above 100 dollars, and the impact on energy prices is already being felt around the world and Nigeria isn’t an exception. The deregulated components of petroleum products would witness sharp increases which include diesel, aviation fuel, and kerosene and gas would suffer the same fate. And the escalation of these costs, there would be serious inflationary implications across all sectors of the economy.
It is conspicuous that the said largest oil producer in Africa does not have an operational refinery and imports fuel and most recently, adulterated fuel into the country. It is expedient for Nigerian Political administrators to start to look inwards and invest in its infrastructure. Nigeria needs to get more from our gas reserves. If the country cannot supply neighbouring countries, it should develop it as a source of domestic energy production to replace regions with epileptic power supply. I hope Nigeria learns from the Russian-Ukrainian predicament and contests to be a global player in the oil and gas markets.