LBS July 2026 Breakfast Presentation: Why Falling Oil Prices Could Reshape Nigeria’s Economy

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The global economy is entering a period of uneasy calm rather than genuine stability. While the immediate military confrontation between the United States and Iran has subsided, policymakers and investors remain cautious about declaring the crisis over. This fragile peace has already reshaped financial markets, commodity prices, and economic expectations worldwide. Against this backdrop, the July 1, 2026 Lagos Business School (LBS) Breakfast Session, titled “Fragile Peace: Is the War Really Over?” and presented by Bismarck Rewane of Financial Derivatives Company (FDC), examines how the easing of geopolitical tensions is creating a completely different set of economic challenges for Nigeria. Rather than worrying about soaring oil prices and imported inflation, policymakers must now prepare for declining export earnings, widening fiscal deficits, slower foreign exchange inflows, and a more competitive global investment environment, even as falling fuel prices provide much-needed relief for businesses and consumers.

Fragile peace, not lasting stability

At the centre of the presentation is the argument that markets may have become overly optimistic about the apparent de-escalation of tensions between the United States and Iran. Although both countries signed a Memorandum of Understanding aimed at reducing hostilities, the document merely reflects an intention to cooperate rather than a legally binding peace agreement. Military strikes continued even after the signing, highlighting how easily the conflict could reignite. Consequently, while investors have largely removed the geopolitical risk premium previously built into commodity prices, the possibility of renewed conflict remains a significant downside risk that could quickly reverse recent market gains and restore volatility across global financial markets.

Oil prices retreat as the geopolitical premium disappears

The most significant consequence of easing tensions has been the rapid decline in global crude oil prices. During the height of the conflict, fears that the Strait of Hormuz could be disrupted pushed prices sharply higher as traders priced in potential supply shortages. With those fears now easing, much of that premium has evaporated. At the same time, higher production from OPEC+ members, expanding US shale output and rebuilding global inventories are expected to place additional downward pressure on prices.

FDC projects Brent crude to average around $70 per barrel during the third quarter of 2026 before declining further to approximately $65 per barrel in the fourth quarter. While renewed conflict or unexpected production cuts could temporarily reverse this trajectory, the broader outlook points towards a lower oil price environment than Nigeria has enjoyed in recent years.

Lower oil prices create winners and losers in Nigeria

For Nigeria, declining crude prices represent both an opportunity and a structural vulnerability. On one hand, cheaper crude translates into lower petrol and diesel prices, easing transportation costs, lowering manufacturing expenses and gradually reducing inflationary pressures across the economy. Businesses operating in energy-intensive sectors stand to benefit from reduced operating costs, while consumers could regain some purchasing power as fuel becomes more affordable.

On the other hand, Nigeria remains overwhelmingly dependent on crude oil exports despite years of diversification efforts. Roughly seventy percent of export earnings and around half of government revenue still originate from the oil sector. As every exported barrel becomes less valuable, foreign exchange earnings weaken almost immediately, placing pressure on government finances and increasing the likelihood of larger fiscal deficits. Thus, the very development that benefits households and businesses simultaneously weakens the government’s revenue base and limits its fiscal flexibility.

Economic diversification gathers momentum but remains incomplete

Despite the country’s continued dependence on crude oil, the presentation identifies encouraging signs that Nigeria’s export structure is gradually changing. The contribution of crude oil to total export earnings has declined significantly over the past two years as exports of natural gas, cocoa, fertiliser and other agricultural commodities continue to expand. Although this represents genuine progress towards diversification, FDC argues that the transition remains too gradual to fully shield the economy from fluctuations in global oil prices. For the foreseeable future, movements in the international crude market will continue to determine Nigeria’s exchange rate, government revenues and external balance.

Inflation eases, but structural pressures remain

One of the more optimistic elements of the outlook concerns inflation. Falling crude prices are expected to reduce petrol prices further over the coming months, potentially bringing pump prices below one thousand naira per litre and eventually towards nine hundred naira. This decline should gradually filter through transportation, logistics and production costs, allowing headline inflation to moderate towards approximately sixteen percent.

However, the presentation cautions that the transmission mechanism is neither immediate nor complete. Food inflation remains heavily influenced by insecurity, seasonal farming patterns and supply chain disruptions, meaning that cheaper energy alone cannot solve Nigeria’s inflation problem. The overall pace of disinflation is therefore expected to be gradual rather than dramatic.

The naira remains under pressure despite improving fundamentals

Lower oil prices also imply slower foreign exchange inflows, creating downward pressure on the naira. Nevertheless, FDC believes that stronger crude production, continued Central Bank intervention and tighter foreign exchange management should prevent any sharp depreciation in the near term. Interestingly, the presentation argues that the naira remains undervalued when compared with purchasing power parity estimates, suggesting that the currency’s long-term equilibrium value is considerably stronger than prevailing official and parallel market exchange rates. This implies that although short-term volatility may persist, the currency is not fundamentally as weak as current market pricing suggests.

Fiscal pressures intensify ahead of election spending

While consumers may benefit from lower fuel prices, public finances are expected to come under increasing strain. Falling oil revenues, rising debt service obligations and expanding recurrent expenditure are projected to widen Nigeria’s fiscal deficit over the coming months. These challenges may become even more pronounced as election-related spending begins to inject additional liquidity into the economy. Historically, such spending stimulates consumption and borrowing but also increases inflationary pressures and demand for foreign exchange, potentially complicating monetary policy and exchange rate management.

Wage increases offer relief but create new business challenges

Against the backdrop of persistent inflation, the presentation anticipates a broad wage review that could lift average salaries to between one hundred thousand and one hundred and twenty thousand naira, with a separate adjustment to the national minimum wage also considered likely. Higher wages would improve household purchasing power and support consumer spending, particularly within fast-moving consumer goods and retail sectors. However, they would also increase labour costs for businesses, squeeze corporate profit margins, discourage hiring in labour-intensive industries and place additional pressure on government expenditure. The wage adjustment therefore represents another example of a policy that generates both economic benefits and unintended consequences simultaneously.

Financial markets transition from optimism to caution

Global financial markets spent the first half of 2026 rotating between growth stocks, defensive sectors and value investments as geopolitical events reshaped investor sentiment. Early enthusiasm for technology companies gave way to energy and defence stocks during the US-Iran confrontation before capital gradually returned to fundamentally strong companies once tensions subsided.

Nigeria’s stock market experienced a similar shift. After reaching record highs earlier in the year, the Nigerian Exchange entered a correction phase as investors took profits, foreign portfolio investors redirected capital towards attractive opportunities in the United States, and domestic institutions liquidated holdings to participate in the Dangote Refinery private placement. FDC expects this correction to continue, arguing that sections of the market have become detached from underlying corporate earnings and now display characteristics associated with speculative excesses.

Real estate emerges as the next potential bubble

Beyond equities, the presentation identifies Nigeria’s real estate market as another area requiring caution. Years of aggressive property development have created a growing imbalance between supply and effective demand. Rising rents have reduced affordability, while increasing mortgage defaults and excess inventory suggest that prices may eventually undergo a significant correction. According to FDC, the combination of oversupply and weakening purchasing power resembles the early stages of a classic property bubble, making real estate one of the key risks facing investors over the medium term.

Business activity gradually strengthens despite fiscal headwinds

Although fiscal pressures are intensifying, broader economic activity is expected to improve during the second half of the year. Manufacturing activity, measured by the Purchasing Managers’ Index, is projected to return to expansion territory as energy costs decline and supply chains recover. Electronic payment volumes are also forecast to increase as seasonal inventory restocking, stronger commercial activity and lower transportation costs stimulate business transactions. Oil production has already begun recovering following improved operational stability and additional upstream investments, partially offsetting some of the revenue losses arising from lower crude prices. Meanwhile, increased shipping activity at Nigerian ports reflects expectations of stronger imports and Christmas inventory accumulation later in the year.

Aviation and the creative economy receive an unexpected boost

Some of Nigeria’s fastest-growing sectors stand to benefit directly from falling energy prices. Airlines are expected to enjoy significantly lower jet fuel costs following the collapse in Middle Eastern risk premiums, improving profitability while reducing the need for further airfare increases. The creative economy also receives cautious optimism. Although household spending remains constrained and insecurity continues to affect live events, global demand for Afrobeats, the continued expansion of digital streaming platforms, artificial intelligence adoption and increasing reliance on YouTube distribution are expected to support gradual growth across Nigeria’s entertainment industry during the second half of 2026.

Xenophobia threatens African economic integration

Moving beyond purely economic indicators, the presentation highlights the growing risk that rising xenophobic tensions between Nigeria and South Africa could undermine decades of regional integration. Beyond the immediate humanitarian concerns, deteriorating bilateral relations threaten trade flows, tourism, cross-border investment, remittances and collaboration within Africa’s rapidly expanding creative economy. Given the substantial commercial presence of South African companies in Nigeria and Nigerian businesses operating in South Africa, prolonged diplomatic tensions could weaken investor confidence and slow the broader objectives of the African Continental Free Trade Area.

Outlook for the second half of 2026

Looking ahead, FDC expects Nigeria to enter a period of moderate but uneven economic improvement. Petrol prices are projected to continue falling, inflation should ease gradually, and business activity is expected to strengthen as operating costs decline. However, these gains are likely to be offset by weaker government revenues, larger fiscal deficits, continued pressure on the naira and a more cautious investment climate. The presentation concludes that Nigeria’s greatest challenge is no longer managing the inflationary consequences of expensive oil but adapting to an era of cheaper crude in which sustainable growth increasingly depends on diversification, fiscal discipline and improvements in productivity rather than commodity windfalls.