The escalating tensions involving the United States, Israel, and Iran have introduced significant uncertainty into global economic outlooks. The direction this conflict takes will shape energy markets, inflation trends, trade flows, and financial stability across the world. While predicting geopolitical developments is inherently difficult, economic scenario analysis helps policymakers and investors prepare for possible outcomes. Drawing on historical patterns and global energy assessments such as those published by the International Energy Agency and the U.S. Energy Information Administration, four plausible scenarios can be considered.
Scenario 1: Limited Conflict and Gradual De-escalation
In the first scenario, the conflict remains relatively contained and diplomatic pressure gradually pushes the parties toward de-escalation. Military operations may continue for a short period but do not spread significantly across the region.
A key determinant of this outcome is the stability of the Strait of Hormuz, through which roughly one-fifth of global oil supply passes. If shipping routes remain open and oil infrastructure is not severely damaged, the global energy market would likely experience only temporary disruption.
Oil prices could rise briefly toward the $100–$110 per barrel range before stabilizing around $90–$100 as market confidence returns. For oil-exporting economies such as Nigeria, this scenario would bring moderate fiscal relief. Higher crude prices could strengthen government revenue and foreign exchange inflows. For example, a sustained $10 increase in oil prices could potentially generate trillions of naira in additional annual revenue depending on production volumes and exchange rate conditions.
However, even in this relatively mild scenario, domestic fuel costs and inflationary pressures may remain elevated in many developing economies.
Scenario 2: Prolonged Regional Conflict
A second possibility is a prolonged regional confrontation lasting several years. In this scenario, Iran expands its response through regional alliances and asymmetric strategies, increasing instability across the Middle East.
The Persian Gulf and particularly the Strait of Hormuz become recurring flashpoints. Even intermittent threats to this strategic corridor would introduce persistent risk into global energy markets.
Under these conditions, crude oil prices could rise significantly, potentially reaching $120–$150 per barrel. Such a development would likely reignite global inflationary pressures, delay monetary policy easing, and weaken growth prospects in energy-importing economies.
For Nigeria, the fiscal effects could initially be positive because of higher export revenues. Government finances and foreign reserves may strengthen in the short term. Nevertheless, the domestic economy could simultaneously face rising transport costs, higher food prices, and broader inflation as global energy prices filter through local supply chains.
Scenario 3: Structural Global Economic Fragmentation
The third scenario focuses less on the duration of the conflict and more on its structural consequences. The war could accelerate the ongoing fragmentation of the global economic system.
Events such as the China–United States Trade War, the COVID-19 Pandemic, and the Russian invasion of Ukraine have already weakened traditional globalization patterns. The present conflict may deepen this shift by encouraging countries to form tighter geopolitical and economic blocs.
In such an environment, supply chains become more regionalized, strategic commodities are increasingly weaponized, and energy security becomes a central national priority. Oil prices may fluctuate widely between $90 and $140 depending on geopolitical developments.
For us, the long-term impact would depend on domestic reforms. Strengthening domestic refining capacity, manufacturing capability, and regional trade integration.
Paul Alaje, is the Chief economistat SPMP
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