The World Bank has warned that the ongoing surge in global oil prices could directly add around 3.1 percentage points to Nigeria’s headline inflation, as rising fuel costs ripple through the economy.
The bank highlighted the widening gap between locally refined petrol and imported fuel as a key factor driving inflationary pressures in the downstream sector.
This was contained in its latest Nigeria Development Update released in Abuja on Tuesday, where it noted that the current pricing structure has created a gap between locally refined fuel and import parity prices.
It also stated that imported petrol is about 12 per cent cheaper than fuel supplied by the Dangote Petroleum Refinery, reflecting distortions in the domestic pricing structure amid soaring global crude prices.
“Dangote refinery—the main supplier of refined petrol after the regulator ceased issuing import licences in early 2026—raised the ex-depot price of Premium Motor Spirit to about N1,275 per litre as of March 23, 2026, compared to an estimated import-parity price of around N1,122 per litre, implying a cost differential of roughly 12 per cent,” the report said.
The World Bank said this development reflects broader pressures in the energy market following the Middle East conflict, warning that an increase in oil prices to about $80 per barrel—representing a 31.1 per cent rise relative to pre-conflict levels—could significantly worsen inflationary pressures.
“Overall, an increase in oil prices to about $80 per barrel… would directly add around 3.1 ppts to headline inflation under a full pass-through assumption,” the report stated, noting that indirect effects from higher fuel costs on transport, logistics, and food prices could push inflation even higher.
Energy-related components, such as transport, account for roughly 10.1 per cent of Nigeria’s Consumer Price Index basket, meaning price shocks in fuel quickly transmit into broader price levels. “In addition to higher energy costs, the conflict is also likely to put upward pressure on food prices, as rising global food and fertiliser prices feed into domestic inflation,” the report added.
Speaking at the launch of the report in Abuja, World Bank Country Director for Nigeria, Mathew Verghis, said the report was released amid improving macroeconomic conditions, but with rising global risks. “Nigeria’s macroeconomic fundamentals continue to improve through 2025 and into early 2026… the government’s stabilisation reforms since mid-2023 continue to deliver dividends,” he said.
He noted that while inflation had shown some relief in January and February, the ongoing Middle East conflict posed new risks. “Higher global energy prices and rising shipping costs are putting pressure on domestic prices… we are already seeing this in domestic fuel prices,” Verghis said, noting that petrol prices rose sharply while diesel prices nearly doubled by the end of March.
He warned that these pressures would continue to filter through the economy. “This can be expected to continue to feed into food and other prices, and this has already started to happen,” he said.
Verghis also highlighted that while higher oil prices may boost government revenues, the benefits remain constrained. “As a net oil exporter, Nigeria’s fiscal and external balances will benefit, although the extent of the benefit is limited,” he said, stressing that reducing inflation remains central to improving living conditions.
“Reducing high inflation is probably the single fastest way to allow people to feel the benefits of reforms… even at 15 per cent, inflation is reducing purchasing power in a significant way,” he said.
He emphasised that structural measures—reducing trade barriers, easing supply constraints, and targeted support for vulnerable households—would be critical to easing price pressures.
On growth, Verghis said, “Real progress… will require faster and sustained job-rich growth,” citing energy, infrastructure, and fiscal reforms as key priorities.
He also highlighted early childhood development as a cornerstone for long-term economic prosperity. “If Nigeria is to achieve high-income status… the most important investment to make will be in early childhood,” he said, warning that current outcomes “should be treated as a crisis.”
World Bank Lead Economist for Nigeria, Fiseha Haile, noted that while Nigeria’s economy had strengthened and remained resilient, rising global risks, especially from the Middle East conflict, could affect inflation.
“PMS prices have already increased by over 50 per cent since the start of the conflict… and this affects prices directly and indirectly,” Haile said, adding that higher energy costs are feeding into broader price pressures across the economy.
He also pointed to improvements in the external sector, noting that “reserves have gone up significantly, the exchange rate system has been unified, and exchange rate volatility has declined,” while cautioning about risks from weaker capital inflows and tighter global financing conditions.
On fiscal performance, Haile said gross revenues have risen, but spending pressures persist, contributing to a slight widening of the fiscal deficit to about 3.1 per cent of GDP in 2025.
Looking ahead, he projected that “growth [will be] at about 4.2 per cent over the medium term between 2026 and 2028,” but cautioned that inflation risks remain a major concern and could erode welfare gains.
Minister of Finance and Coordinating Minister of the Economy, Wale Edun, said Nigeria was better positioned to absorb the external shock from the Middle East crisis because of prior reforms.
“Despite higher prices, there’s still supply… that resilience keeps the wheels of the Nigerian economy and society turning,” he said, stressing the need to attract private investment to complement government efforts in reducing poverty.
Edun added that crude production had risen to 1.4 million barrels per day, giving the government scope to maximise revenue while preparing for potential inflation shocks, with targeted social safety nets for the most vulnerable.
He said deductions previously retained by NNPC, the frontier exploration fund, and gas flare penalties were now redirected to the Federation Account to ensure smoother revenue remittance.
Deputy Governor for Economic Policy at the CBN, Muhammad Abdullahi, said the central bank continued to prioritise macroeconomic stability, particularly through inflation and exchange rate management.
“Nigeria has been on a solid disinflation journey for over a year… headline inflation at around 15 per cent remains too high, and the central bank is working daily to bring it lower because it remains the biggest tax on the poor,” he said.
Representing Gombe State Governor Inuwa Yahaya, Commissioner for Finance and Economic Development, Muhammad Magaji, said early childhood development should be treated as a structural priority, on par with macroeconomic indicators.
He called for a long-term national early childhood development plan that would integrate policies across health, education, women’s affairs, and justice, warning that ignoring early childhood investment reduces long-term GDP and earning potential.
Executive Director of the Policy Innovation Centre, Dr Osasuyi Dirisu, said early childhood development must be pursued as a joint national and subnational agenda, with clear metrics, state ownership, and community-level implementation to improve productivity and national development.
