Oil Surge May Derail Rate Cuts, Inflation Fight, Cardoso Warns

Escalating tensions in the Middle East are sending fresh shockwaves through global markets, raising concerns that inflationary pressures could complicate the Central Bank of Nigeria’s (CBN) anticipated monetary easing cycle in 2026, the apex bank has warned.

CBN governor, Olayemi Cardoso, warned that the escalating tensions in the Middle East which had seen oil prices soar may fuel inflation in the country, and impact the easing cycle which the monetary policy had embarked on.

At its last meeting, the Monetary Policy Committee (MPC) had cut rates by 50 basis points to 26.5 per cent as inflation continued to trend downwards.

However, the latest inflation data showed a minimal retraction in inflation which dropped from 15.1 per cent in January to 15.06 per cent in February.

Food inflation had, however, spiked to 12.12 per cent as against 8.89 per cent in January.

Speaking in an interview with Financial Times, Cardoso noted that geopolitical shocks would most likely be transmitted to Nigeria through energy prices and global financial conditions, factors that will be considered at the next MPC meeting in May.

“Higher oil prices can support export earnings and strengthen the balance of payments, but they can also feed into domestic inflation through fuel, transport, and imported goods,” Cardoso said.

Brent crude has climbed to more than $100 a barrel in recent weeks as tensions in the Middle East deepened, raising concerns about supply disruptions.

The CBN governor, however, noted that policymakers are alert to the risk that higher global energy costs could reverse progress made in stabilising prices. Imported inflation, particularly through refined fuel and other dollar-denominated goods, remains a key vulnerability despite ongoing foreign-exchange reforms.

Cardoso also pointed out that heightened geopolitical uncertainty tends to dampen investor appetite for emerging and frontier markets, potentially slowing capital flows and tightening financial conditions.

For Nigeria, which has worked to restore foreign investor confidence after years of currency distortions and capital controls, any pullback in portfolio inflows could test recent gains in the naira and external reserves.

“The precise impact will depend on how events evolve,” Cardoso said.

He, however,  struck a note of confidence about Nigeria’s preparedness to weather external shocks.

Over the past two years, the central bank has rebuilt policy buffers, strengthened external reserves, and restored greater functionality to the foreign-exchange market, he said.

Also commenting on the development, senior market analyst for Africa at FXTM, Matthew Anthony, said the renewed geopolitical strain had triggered a surge in oil prices, with implications for inflation dynamics across emerging markets, including Nigeria.

He noted that Nigeria’s inflation had shown signs of moderation, easing to 15.06 per cent in February, just before the latest Iran conflict erupted. However, the recent spike in global crude prices has filtered into domestic energy markets, with gasoline prices rising by more than 30 per cent.

The increase, he explained, has significantly driven up transportation costs, placing additional pressure on household spending and threatening to reverse recent gains in price stability.

Despite these headwinds, Nigeria’s oil production has provided some buffer against the immediate fallout of the crisis. The naira has remained relatively stable, depreciating marginally by 0.3 per cent against the dollar over the past two weeks.

Anthony warned that the evolving global risk environment, marked by rising investor caution, could force central banks to reassess their policy stance, particularly as inflation risks resurface.

For the CBN, he said this presents a delicate balancing act between supporting growth through lower interest rates and containing renewed inflationary pressures triggered by external shocks.