Nigeria manufacturers face severe cost shock as Iran war drives diesel, shipping prices up

By: Amarachi Okonkwo

Nigeria’s manufacturing sector is facing mounting pressure as a sharp global energy and logistics shock driven by the closure of the Strait of Hormuz and escalating attacks on energy infrastructure linked to the Iran conflict pushes up diesel prices, freight costs, and raw material import expenses.

Industry stakeholders warn that the combined effect of rising energy costs and disrupted shipping routes is rapidly eroding production margins, with some factories now struggling to remain competitive amid surging operating expenses.

According to the Manufacturers Association of Nigeria (MAN), the impact of the crisis on local industry is both immediate and severe, particularly for energy-intensive sectors that depend heavily on diesel and gas to power production in the face of unreliable electricity supply.

“For the manufacturing sector, the implications of the Iran war are immediate, severe and multifaceted,” said Segun Ajayi-Kadir, Director-General of MAN, in a policy note issued on March 27.

He explained that manufacturers in Nigeria rely extensively on Automotive Gas Oil (diesel) and gas for production, making them highly vulnerable to global energy price fluctuations. The current disruption, he noted, is driving up domestic pump and depot prices at an alarming pace.

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Depot prices of Automotive Gas Oil have reportedly surged by about 65 percent, rising from around N970 before the escalation to approximately N1,600. The spike has significantly increased production costs for factories dependent on diesel-powered generators to sustain operations.

Beyond energy costs, global shipping disruptions are compounding the crisis. Major shipping operator CMA CGM recently announced a “Peak Season Surcharge” of $600 per twenty-foot equivalent unit (TEU) on cargo shipments to Nigeria from China, a move that is expected to further inflate import costs for manufacturers reliant on Chinese raw materials.

The closure of the Strait of Hormuz a critical global energy transit corridor has also extended shipping routes and delivery timelines, increasing freight costs and delaying the arrival of key industrial inputs. Manufacturers say the result is a growing backlog of expensive raw materials and rising logistics bottlenecks.

Domestic haulage costs have also climbed sharply. Transporting a container from Apapa Port in Lagos to warehouses in Ikeja, which previously cost about N450,000, now ranges between N650,000 and N700,000, reflecting broader inflationary pressures across the logistics chain.

MAN warns that sectors including chemicals and pharmaceuticals, basic metals, iron and steel, and food and beverages are among the hardest hit. These industries rely heavily on imported raw materials and are particularly sensitive to global oil and petrochemical price movements.

According to Ajayi-Kadir, petrochemical derivatives are highly exposed to crude oil shocks, meaning disruptions in the global petroleum market immediately translate into higher costs for Active Pharmaceutical Ingredients (APIs) and other chemical inputs used in production.

“This will squeeze margins and threaten the export dominance of operators within the sectoral group,” he said.

He further cautioned that prolonged geopolitical tensions could result in widespread inventory build-up as rising production costs push finished goods prices higher, weakening demand in both domestic and export markets.

“The US-Israel-Iran conflict is a stark reminder of Nigeria’s vulnerability to external shocks so long as our manufacturing base remains heavily reliant on imported raw materials,” he added.

While acknowledging the pressure, MAN stressed that Nigeria cannot influence global geopolitical developments but must respond with stronger domestic policy interventions to cushion the impact.

“We cannot control the geopolitics of the Gulf, but we can and must control our domestic policy responses. The window for reactive measures is closed; the time for proactive manufacturing fortification is now,” Ajayi-Kadir said.

From a macroeconomic perspective, analysts note a paradox emerging from the global oil price surge. While higher crude prices typically boost oil-exporting economies like Nigeria, structural production constraints limit potential gains.

MAN noted that although oil prices approaching $100 per barrel should theoretically strengthen Nigeria’s foreign exchange position and support the naira, actual benefits remain constrained by low domestic output, which hovers around 1.3 to 1.4 million barrels per day.

As a result, Nigeria is seen as capturing price gains without corresponding volume gains, weakening the expected fiscal windfall.

The association also referenced historical precedent, noting that past oil price booms particularly during periods of Middle Eastern conflict were not effectively translated into industrial or manufacturing growth due to weak economic diversification.

Real GDP growth in the manufacturing sector stood at 1.13 percent year-on-year in the fourth quarter of 2025, reflecting subdued expansion amid persistent structural challenges.

Economists warn that unless urgent measures are taken to improve energy security, expand local production capacity, and reduce import dependence, Nigeria’s manufacturing sector could face prolonged stagnation in the face of ongoing global instability.Nigeria’s manufacturing sector is facing mounting pressure as a sharp global energy and logistics shock driven by the closure of the Strait of Hormuz and escalating attacks on energy infrastructure linked to the Iran conflict pushes up diesel prices, freight costs, and raw material import expenses.

Industry stakeholders warn that the combined effect of rising energy costs and disrupted shipping routes is rapidly eroding production margins, with some factories now struggling to remain competitive amid surging operating expenses.

According to the Manufacturers Association of Nigeria (MAN), the impact of the crisis on local industry is both immediate and severe, particularly for energy-intensive sectors that depend heavily on diesel and gas to power production in the face of unreliable electricity supply.
“For the manufacturing sector, the implications of the Iran war are immediate, severe and multifaceted,” said Segun Ajayi-Kadir, Director-General of MAN, in a policy note issued on March 27.

He explained that manufacturers in Nigeria rely extensively on Automotive Gas Oil (diesel) and gas for production, making them highly vulnerable to global energy price fluctuations. The current disruption, he noted, is driving up domestic pump and depot prices at an alarming pace.

Depot prices of Automotive Gas Oil have reportedly surged by about 65 percent, rising from around N970 before the escalation to approximately N1,600. The spike has significantly increased production costs for factories dependent on diesel-powered generators to sustain operations.

Beyond energy costs, global shipping disruptions are compounding the crisis. Major shipping operator CMA CGM recently announced a “Peak Season Surcharge” of $600 per twenty-foot equivalent unit (TEU) on cargo shipments to Nigeria from China, a move that is expected to further inflate import costs for manufacturers reliant on Chinese raw materials.

The closure of the Strait of Hormuz a critical global energy transit corridor has also extended shipping routes and delivery timelines, increasing freight costs and delaying the arrival of key industrial inputs. Manufacturers say the result is a growing backlog of expensive raw materials and rising logistics bottlenecks.

Domestic haulage costs have also climbed sharply. Transporting a container from Apapa Port in Lagos to warehouses in Ikeja, which previously cost about N450,000, now ranges between N650,000 and N700,000, reflecting broader inflationary pressures across the logistics chain.

MAN warns that sectors including chemicals and pharmaceuticals, basic metals, iron and steel, and food and beverages are among the hardest hit. These industries rely heavily on imported raw materials and are particularly sensitive to global oil and petrochemical price movements.

According to Ajayi-Kadir, petrochemical derivatives are highly exposed to crude oil shocks, meaning disruptions in the global petroleum market immediately translate into higher costs for Active Pharmaceutical Ingredients (APIs) and other chemical inputs used in production.

“This will squeeze margins and threaten the export dominance of operators within the sectoral group,” he said.

He further cautioned that prolonged geopolitical tensions could result in widespread inventory build-up as rising production costs push finished goods prices higher, weakening demand in both domestic and export markets.

“The US-Israel-Iran conflict is a stark reminder of Nigeria’s vulnerability to external shocks so long as our manufacturing base remains heavily reliant on imported raw materials,” he added.

While acknowledging the pressure, MAN stressed that Nigeria cannot influence global geopolitical developments but must respond with stronger domestic policy interventions to cushion the impact.

“We cannot control the geopolitics of the Gulf, but we can and must control our domestic policy responses.
The window for reactive measures is closed; the time for proactive manufacturing fortification is now,” Ajayi-Kadir said.

From a macroeconomic perspective, analysts note a paradox emerging from the global oil price surge. While higher crude prices typically boost oil-exporting economies like Nigeria, structural production constraints limit potential gains.

MAN noted that although oil prices approaching $100 per barrel should theoretically strengthen Nigeria’s foreign exchange position and support the naira, actual benefits remain constrained by low domestic output, which hovers around 1.3 to 1.4 million barrels per day.

As a result, Nigeria is seen as capturing price gains without corresponding volume gains, weakening the expected fiscal windfall.

The association also referenced historical precedent, noting that past oil price booms particularly during periods of Middle Eastern conflict were not effectively translated into industrial or manufacturing growth due to weak economic diversification.

Real GDP growth in the manufacturing sector stood at 1.13 percent year-on-year in the fourth quarter of 2025, reflecting subdued expansion amid persistent structural challenges.

Economists warn that unless urgent measures are taken to improve energy security, expand local production capacity, and reduce import dependence, Nigeria’s manufacturing sector could face prolonged stagnation in the face of ongoing global instability.