US vs Iran: Upside and downsides for Nigeria

Last week Friday,

The United States in a drone attack killed Qassem Soleiman an Iranian general and commander of its Quds Force, a division primarily responsible for extraterritorial military and clandestine operations.

 Iran has vowed revenge and the United States has shown no signs of backing down. In retaliation for this American strike, Iran fired missiles at US base in Iraq yesterday, although there has been no report of US Casualties.

Nigeria may be miles away from this and a neutral party, but the arising tensions have positive and negative effects. 

 Upside

Crude oil tends to rise when there is geopolitical tension. If this geopolitical tensions becomes more severe,this could lead to a rise in oil prices which is good for Nigeria's oil revenue target.

Crude oil prices hit $70, for the first time in four months. Nigeria is largely dependent on crude oil, for government revenue and foreign exchange. Current prices are thus higher than the 2020 budget benchmark of $57.

Downsides

Higher crude oil prices will lead to higher petrol prices, and ultimately a higher subsidy bill for the government. This in turn will lead to lower FAAC allocations. States and local governments may agitate for an increase in the price of petrol.