Oil Rally Lifts Nigeria’s Forex Outlook Amid Iran Tensions — Analyst

Amid escalating geopolitical tensions in the Middle East, global oil benchmarks are on track to post their strongest monthly gains in over three decades, raising fresh optimism for oil-exporting nations such as Nigeria.

Head of Market Research at FXTM, Lukman Otunuga, in an emailed note to LEADERSHIP said rising fears of supply disruptions, particularly as the Strait of Hormuz remains effectively closed, have pushed oil prices into triple-digit territory, reinforcing a bullish outlook for the commodity.

According to him, “Oil benchmarks are heading for their best monthly gain since 1990,” noting that the persistent closure of the critical shipping route has heightened concerns over supply shocks.

He added that with the ongoing conflict, oil prices remain fundamentally strong, with the $100 mark serving as a key psychological threshold for both Brent and crude oil.

For Nigeria, Otunuga described the development as a positive shift, given its status as a net oil exporter. “This is good news for Nigeria who is a net oil exporter. Higher oil prices should translate to currency gains,” he said, although he cautioned that global risk aversion stemming from the Iran conflict could temper potential upside.

The global market environment has remained highly volatile, with tensions escalating after Iran accused the United States of preparing for a possible ground assault, even as former U.S. President Donald Trump reportedly explored diplomatic options to end the conflict.

The situation, now in its fifth week, has injected uncertainty into financial markets, although some optimism emerged after reports suggested a possible de-escalation effort.

Otunuga, however, warned that “repeated mixed messages and the ongoing closure of the Strait of Hormuz could lead to more volatility as investors scramble to price the uncertainty.”

Meanwhile, gold, traditionally viewed as a safe-haven asset, has come under pressure, shedding nearly 14 per cent this month despite prevailing risk-off sentiment.

He attributed the decline to a stronger U.S. dollar and reduced expectations of lower interest rates following recent comments by Federal Reserve officials.

In the currency market, Otunba noted that the Japanese yen has come into focus after the USD/JPY pair crossed the 160 level for the first time since July 2024, raising the possibility of intervention by Japanese authorities.

He explained that any such move could trigger a sharp selloff in the pair, particularly as the Iran conflict continues to fuel demand for safe-haven assets like the yen, while also exposing Japan to oil price volatility due to its heavy reliance on Middle Eastern crude imports.