Implications for The Domestic Economy:

The Russian invasion of Ukraine has profound and multidimensional implications for the Nigerian economy, especially if it gets protracted. These include the escalation of energy prices [diesel, aviation fuel, kerosene and gas], mounting petrol import and subsidy bill and the aggravation of petrol smuggling.  There are also significant macroeconomic outcomes which include heighten fiscal deficit, growing debt levels, spike in debt service payments, money supply growth, exchange rate depreciation and more intense inflationary pressures.  Additionally, the cost of flour, price of bread and other confectioneries may also take a hit. The summary is that if the conflict is protracted, these would be the downside risks to the Nigerian economy.

Higher Energy Cost:

Russia is the second largest producer of oil globally, even ahead of Saudi Arabia.  It produces 10 million barrels per day. There is a good chance that the conflict in the region would disrupt oil supplies, reduce output and trigger higher prices. Already, oil price is above $100 and the impact on energy prices is already being felt around the world. 

In Nigeria, the deregulated components of petroleum products would witness sharp increases. These include diesel, aviation fuel and kerosene.  Gas would suffer the same ate.

The escalation of these costs obviously has serious inflationary implications across sectors. The geopolitical tension of the recent weeks had actually bolstered energy prices even before the current onslaught by Russia. The situation may get worse if the conflict escalates.  This would affect cost of production, profit margins, purchasing power and may further worsen the poverty situation.

Higher Fuel Imports and Subsidy Bill

We will see an upsurge in petrol import and subsidy bill in coming months as the landing cost of petrol increases on the back of the rise in crude oil price. Regrettably, we remain a major importer of petroleum products and typically when oil prices increase, petrol import bill and subsidy payment also increase. Only recently the NNPC made a request of N3trillion for petrol subsidy.  With current turn of events, the subsidy bill would even be higher, creating serious fiscal challenge for government at all levels. These of course have serious implications for the budget and government finances….

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