The escalating geopolitical tensions involving the United States, Israel, and Iran have triggered a profound global crisis, primarily impacting energy and food markets. President Donald Trump has sharply criticized traditional U.S. allies, including the United Kingdom and France, for their lack of support in recent military operations against Iran, specifically targeting the UK for neutrality and France for denying airspace. Trump's “America First” stance has reached a new peak, demanding allies secure their own energy routes and dismissing further U.S. military protection, declaring, “The U.S.A. won't be there to help you anymore.” He threatened to destroy Iran’s crude export hub, oil wells, and power plants unless Tehran accepts a peace deal, while also suggesting allies like the UK should “Go to the Strait, and just TAKE IT” to secure oil supplies.

This conflict has sent shockwaves through the global energy market, with the Strait of Hormuz becoming increasingly impassable. This critical chokepoint, through which roughly a fifth of the world’s oil and liquefied natural gas passes, has seen reduced maritime traffic due to Iranian attacks on vessels. The disruptions have led to a dramatic spike in global jet fuel prices and a surge in oil prices, reaching $114 per barrel and Brent crude nearing $150 per barrel, levels not seen since 2008. Consequently, the U.S. national average retail price of petrol crossed $4 a gallon for the first time in over three years, specifically since August 2022, according to data from GasBuddy and the American Automobile Association. The surge, which has seen prices climb about $1.06 a gallon (36%) since late February, is placing significant financial pressure on American households, with states like California, Hawaii, and Washington experiencing the highest prices. Despite Trump's optimism about a negotiated settlement, the threat of further military escalation against Iran's oil infrastructure looms, and market uncertainty remains high.

Beyond energy, the conflict poses a severe risk to global food security. International policy experts and former world leaders have called for an urgent “Hormuz Initiative,” modeled on the Black Sea Grain Initiative, to safeguard the flow of food, fertilizer, and key agricultural inputs through the Strait. This appeal highlights that disruptions affect nearly one-third of global fertilizer shipments, threatening agricultural production, especially for smallholder farmers in developing countries. The proposed initiative would focus narrowly on facilitating safe passage of these materials, independent of the broader military situation. The United Nations has announced a task force to address maritime trade disruptions, aiming to develop a concrete transit mechanism involving diplomatic, maritime, and humanitarian experts.

Nigeria, in particular, faces high vulnerability to this geopolitical tension, with a composite risk indicator of 0.816, according to counterfactual simulations. This vulnerability is primarily driven by its exposure across strategic commodities: refined petroleum, wheat, and urea fertilizer. While Nigeria’s crude oil exposure is high, it is mainly linked to U.S.-trade channels, and direct physical disruption from the Strait of Hormuz on crude oil trade is limited. However, global price volatility and uncertainty still impact Nigeria’s foreign exchange earnings, fiscal revenue, and exchange rate stability, contributing to inflation.

Refined petroleum is identified as one of the strongest channels for the crisis to affect domestic prices in Nigeria. The country's dependency on the U.S. for refined petroleum, coupled with a significant loss of 5.9% in import-side exposure under a Strait of Hormuz disruption, would directly impact petrol, diesel, aviation fuel, transportation, power generation, and logistics. Given that transport and household energy account for 19.1% of Nigeria's Consumer Price Index (CPI) basket, such a shock could generate a sizeable pass-through into transport fares, household energy costs, and broader business expenses, severely affecting poor households.

Wheat exposure is another major vulnerability, crucial for staples like flour, bread, and noodles, and accounting for 40.0% of Nigeria's CPI basket. Geopolitical shocks that raise international wheat prices or disrupt supply would quickly feed into food inflation, disproportionately burdening poor households whose expenditure is heavily concentrated on food items. The simulation further indicates that urea fertilizer is the most direct channel through which Nigeria faces combined exposure to U.S. and Iranian shocks. A Strait of Hormuz disruption could lead to a dramatic 96.7% decline in Nigeria’s import-side exposure for urea, a critical agricultural input. This would increase fertilizer prices, reduce affordability for farmers, weaken crop productivity, and raise domestic food supply costs, feeding into food inflation even without direct inclusion in the CPI basket.

The macroeconomic implications for Nigeria are severe, extending beyond direct commodity price increases. The immediate effect would manifest as higher prices for refined petroleum, wheat, and urea fertilizer, directly impacting major CPI components like Food (40.1%), Transport (10.7%), Housing, Water, Electricity, Gas and Other Fuels (8.4%), and Restaurants and Accommodation Services (12.9%). This would lead to higher local fuel prices, stronger food inflation, more expensive transport, rising energy costs, and worsening household living expenses. Second-round effects are also anticipated, where higher fuel and food prices increase distribution and production costs across the economy, pushing up core inflation and making it more persistent. This complicates monetary policy, forcing difficult trade-offs between price stability and support for growth and employment.

The welfare implications are equally dire, as rising inflation would erode real household incomes, particularly for low-income households. This would exacerbate poverty, pushing vulnerable households further below the poverty line. In response, temporary and targeted government intervention is strongly advocated for Nigeria. Policy priorities include stabilizing refined fuel supply, protecting wheat-dependent supply chains, and ensuring urea fertilizer availability. Additionally, a strong case exists for enhancing social protection, utilizing Nigeria's scalable Social Registry, to cushion the negative effects on inflation, welfare, and poverty. A credible response must combine fuel and food market stabilization with shock-responsive social protection measures.