US/Israel–Iran War: What Nigerian businesses, government must do to withstand energy shock

The Centre for the Promotion of Private Enterprise (CPPE) has urged Nigerian businesses and the government to adopt urgent proactive measures to cushion the impact of rising energy costs triggered by escalating geopolitical tensions in the Middle East.

In an advisory note released on Sunday and signed by the CPPE Chief Executive Officer, Muda Yusuf, the organisation warned that the recent surge in global energy prices is intensifying cost pressures on businesses, particularly in Nigeria, where many firms rely heavily on petrol and diesel generators due to poor electricity supply.

According to the CPPE, the rising cost of fuel is increasing operating expenses, transportation costs and distribution charges for businesses, placing pressure on profit margins and threatening the survival of many Small and Medium Enterprises (SMEs).

“Without deliberate adjustments by businesses and supportive policy interventions from the government, rising energy costs could significantly erode profit margins, weaken business sustainability and dampen economic growth,” the organisation said.

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The advisory by the think tank comes against the backdrop of the ongoing military war involving the United States, Israel and Iran, which has unsettled the global oil market in recent weeks.

Additionally, it was issued amid growing concerns about the impact of rising global energy prices on businesses already struggling with high inflation, elevated interest rates and weak consumer purchasing power in Nigeria.

Since the conflict escalated, crude shipments through the Strait of Hormuz — a critical passage that carries about a fifth of the world’s daily oil supply — have faced persistent disruptions.

As a result, crude prices in the international market crossed the $100 per barrel mark, forcing refiners and retailers of petroleum products to raise prices in response to market pressures.

In Nigeria, consumers are already feeling the impact of the supply shock.

Petrol prices have risen by more than 25 per cent across major cities, worsening the cost-of-living crisis many Nigerians have faced since the removal of fuel subsidy in 2023.

Fuel prices jumped from about N870 per litre to nearly N1,400 per litre in Abuja within a week after the conflict escalated.

The increase in petrol prices is already affecting households and businesses, with transportation costs and the prices of goods and services gradually rising across several cities.

Advice for businesses

The CPPE urged businesses to prioritise energy efficiency as a quick and cost-effective strategy to manage rising fuel costs.

It recommended measures such as reducing energy waste, optimising generator usage, deploying energy-efficient equipment and promoting energy conservation among staff.

The organisation also advised businesses to diversify their energy sources by exploring solar power, hybrid energy systems and gas-powered generators where infrastructure is available.

While the initial investment may be high, the CPPE said renewable and hybrid energy systems could provide long-term cost savings amid persistently high fuel prices.

The advisory also encouraged firms to improve logistics and supply chain efficiency by consolidating deliveries, optimising transport routes, strengthening fleet management systems and using digital platforms to reduce physical movement and fuel consumption.

Businesses were further urged to adopt flexible pricing strategies, strengthen cash flow management and explore cluster-based solutions such as shared power generation and shared logistics among firms operating in industrial clusters.

Policy actions for government

For the government, the CPPE highlighted the need to expand fiscal and regulatory incentives that encourage the adoption of renewable energy by businesses.

It recommended measures such as tax incentives for solar installations, import duty waivers for renewable energy equipment and fiscal support for investments in energy-efficient technologies.

The organisation also called for affordable financing options for SMEs seeking to invest in alternative energy systems, noting that limited access to funding remains a major barrier to energy transition.

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The CPPE emphasised the importance of strengthening domestic refining capacity to improve energy security and reduce Nigeria’s dependence on imported petroleum products.

According to the organisation, expanding local refining could help moderate the impact of global supply disruptions on the domestic economy while also reducing foreign exchange demand for fuel imports.

It also stressed the need to improve electricity supply reliability by expanding power generation capacity, strengthening transmission infrastructure and improving the efficiency of electricity distribution networks.

The CPPE said Nigeria’s vulnerability to global energy shocks underscores the urgency of accelerating reforms in electricity supply, renewable energy adoption and domestic refining.

“With the right combination of proactive business adaptation and supportive public policy, Nigeria can significantly mitigate the impact of the current energy price shock and strengthen the resilience and competitiveness of its business environment,” Mr Yusuf said.