U.S-Israel war on Iran: Implications of increase in global oil price on businesses, marketing

By Tunji Faleye

Since the war broke out in Iran, the United States and Israel have set their sights on Iranian government, aiming either for regime change or to weaken its military might. As a result, crude oil prices have skyrocketed, with Brent crude soaring past $110 a barrel. This surge kicked off when Iran decided to block the Strait of Hormuz, preventing any ships carrying oil from reaching their destinations. Those that attempted to navigate through have faced bombings, thanks to landmines laid by the Islamic Revolutionary Guards in the waters of the Strait.

Energy analysts point to the war as a major factor behind the spike in prices, as it disrupts oil production and shipping routes throughout the Middle East, especially in the crucial Strait of Hormuz—a narrow passage that sees about 20 percent of the world’s oil supply flow through daily. It’s well-known that any threat to this vital corridor sends shockwaves through energy markets, given its importance for crude exports from countries like Kuwait, Qatar, Saudi Arabia, Iraq, Iran, Oman, the United Arab Emirates, and other.

Moreover, Iran’s recent attacks on oil facilities and tanker routes in the region have only heightened these concerns. Following reports of assaults on shipping and energy infrastructure tied to the conflict, oil prices surged by over 10 percent in just one day.

Implications for Nigeria’s corporate sector

As Nigeria faces both opportunities and challenges, the challenges might overshadow the potential benefits. An increase in oil prices tends to ripple through every corner of Nigerian society, despite the potential boost in export earnings and government revenue that could come from it.

Interestingly, many Nigerian companies find themselves more vulnerable to the negative impacts of rising oil prices. When global oil prices surge due to geopolitical tensions, domestic fuel costs follow suit, leading to higher operational expenses for manufacturers, logistics providers, and fast moving consumer goods companies.

This creates a tough landscape where businesses are forced to juggle escalating energy costs while consumers grapple with diminished purchasing power due to inflation. The effects are quickly spreading through Nigeria’s corporate world, as manufacturers, logistics firms, telecom operators, and service providers heavily rely on diesel generators because of the unreliable power supply. As a result, any hike in fuel prices directly drives up production, distribution, and service delivery costs.

Manufacturing firms, in particular, are feeling the pinch. Many of them run their own power generation systems, and the rising cost of diesel significantly boosts their operating expenses. This leads to higher production costs, which companies often pass on to consumers in the form of increased prices for their products.

Increase in distribution costs

The cost of distribution is on the rise every single day, and it’s closely tied to the increasing oil prices. Olaniyi Kayode, a marketer based in Lagos, the bustling commercial hub of Nigeria, shared, “Manufacturers of fast-moving consumer goods are really feeling the pressure until fuel prices drop. Their operations rely heavily on the transportation and distribution of essential goods within Nigeria’s supply chain before they reach consumers.”

Recent industry data reveals that distribution costs for Nigerian businesses have skyrocketed by over 60% in various sectors, including cement, breweries, FMCG, and pharmaceuticals. This surge is likely to have a ripple effect on small and medium-sized enterprises (SMEs), which could face serious challenges if fuel prices keep climbing amid the ongoing conflict.

Reduction in purchasing power

Uche Okafor, a marketer from Lagos, pointed out that the recent spike in oil prices is likely to further squeeze consumers’ purchasing power. This situation is expected to add to the already existing inflationary pressures in Nigeria’s economy, especially since many people’s finances were already strained before the global oil price hike, which has led to higher transport fares and food costs.

Business groups have also raised alarms that if fuel prices keep climbing, it could result in lower production, business closures, and even job losses, as companies may find it tough to cope with the escalating expenses.

Conclusion

Analysts are warning that as long as the disruption to oil shipments drags on, crude oil prices will keep climbing, potentially leading to global hyperinflation that could shake the entire world economy. They believe this situation will significantly impact the distribution of goods and purchasing power.

They opine that the only way to bring down oil prices is for the warring parties to come together and peacefully resolve the conflict for the sake of humanity.