Economic And Regulatory Implications Of The Iran Conflict On The Nigerian Energy Market

Introduction

On 28 February 2026, coordinated U.S.–Israel strikes on Iranian assets triggered a rapid escalation in the Gulf, delivering one of the most severe recent shocks to global energy security. Iran’s retaliation heightened risks around the Strait of Hormuz, a critical energy transit route.

As tanker traffic fell and insurers repriced war risk, oil and gas markets swung sharply: crude prices rose, natural gas prices surged based on fears of sustained supply disruption, and higher freight costs fed inflation. Analysts warned that prolonged instability could raise the price of crude well above $100 per barrel, intensify inflationary pressures, and slow global growth, underscoring how quickly disruptions at key chokepoints transmit across global energy markets.¹ Notably, the relationship between geopolitical conflict and oil price volatility is well established.

Historical episodes, including the 1973 Arab oil embargo and the Iran–Iraq War (1980-1988), demonstrated how instability in major oil-producing regions can trigger systemic economic consequences. The 2026 crisis represents a contemporary manifestation of these dynamics, exposing the continued dependence of global energy markets on geographically concentrated and politically sensitive supply routes.

Against this backdrop, we examine the interaction between geopolitical conflict and oil price volatility through the lens of the 2026 Iran crisis. We analyse the strategic importance of the Strait of Hormuz, the transmission channels through which geopolitical shocks affect global energy markets, and the legal frameworks governing maritime passage and energy trade, including international maritime law, contractual risk allocation mechanisms, and sanctions regimes. We further consider the implications and effects of sustained geopolitical tension for oil-producing economies such as Nigeria.

The 2026 Hormuz Disruption: Background and Market Context

The U.S.–Israel operations targeted key Iranian strategic assets, prompting retaliatory strikes across several Gulf states, including Qatar, Bahrain, the United Arab Emirates, Saudi Arabia, Kuwait and Iraq.² By 2 March 2026, major carriers, including A.P. Møller–Maersk, had rerouted vessels around the Cape of Good Hope, significantly lengthening voyage times and increasing freight costs. Vessel-tracking data indicated that tanker traffic through the Strait of Hormuz declined by roughly 70 per cent, effectively creating an “operational closure” of the passage despite the absence of a formal blockade.

This sharp decline was driven by escalating security risks, including missile and drone attacks on vessels, the laying of sea mines, and direct threats by Iranian authorities restricting passage to approved ships. In addition, the withdrawal of war-risk insurance cover and the designation of the Strait as a high-risk zone rendered transit commercially and operationally untenable for most shipowners, compelling widespread rerouting and suspension of voyages.³

The significance of this disruption lies in the strategic role of the Strait of Hormuz within global energy trade. According to the U.S. Energy Information Administration, approximately 20–21 million barrels per day of crude oil and petroleum products transit the corridor, representing about 21 per cent of global oil supply, alongside a substantial share of global LNG exports.⁴ The immobilisation of these volumes has rapidly reshaped market expectations. Reports indicated that some Gulf producers were forced to reduce output as storage facilities filled, while others, lacking alternative export routes, were unable to move cargoes efficiently to international markets.⁵

It is important to note, however, that not all oilproducing states are equally exposed to disruptions in the Strait of Hormuz. Countries such as Nigeria and Angola export crude directly into the Atlantic Basin and therefore do not depend on the Strait for outbound shipments. By contrast, Gulf producers, including Saudi Arabia, Iraq and Kuwait, rely heavily on the corridor, with the bulk of their exports transiting the Strait to global markets, particularly Asia.

Accordingly, even countries that do not physically utilise the Strait, including Nigeria and other Atlantic producers, remain exposed to its disruption through globally integrated pricing mechanisms. In effect, while the physical chokepoint is regionally concentrated, its economic consequences are global.

Legal Framework Governing the Strait of Hormuz

The disruption in the Strait of Hormuz raises important legal questions concerning the regulation of maritime navigation, contractual risk allocation in energy transportation, and the operation of international sanctions regimes. These legal frameworks play a critical role in shaping how states, shipping companies, insurers, and energy traders respond to geopolitical instability in key energy transit corridors.

The Strait of Hormuz is not merely a geographic passage; it is a legally significant maritime Strait governed by principles of international law. Under Articles 37 to 44 of the United Nations Convention on the Law of the Sea (UNCLOS), straits used for international navigation are subject to the regime of transit passage.⁶ This means that such straits are governed by a specialised legal framework under which ships and aircraft may pass through or over them as a matter of right, provided such movement is continuous, expeditious, and undertaken solely for the purpose of transit between one part of the high seas or an exclusive economic zone and another. This principle ensures that vessels and aircraft of all nations enjoy the right to continuous and expeditious transit, with ships navigating through the strait and aircraft exercising the right of overflight above it. In practical terms, this means that coastal states bordering the strait, most prominently Iran and Oman, may regulate aspects of navigation relating to safety or environmental protection but cannot suspend the right of transit passage altogether.⁷

Iran restricted passage through the Strait to a limited number of “approved vessels” that required prior permission or use safe paths that the Islamic Revolutionary Guard Corps controls. While this amounted to a de facto blockade in practice, no formal legal blockade was ever declared under international law.⁸ Iran’s subsequent warnings that it would completely close the Strait in the event of U.S. strikes on its power infrastructure further challenged the UNCLOS framework, which explicitly prohibits the suspension of transit passage even during periods of armed conflict. This divergence between treaty obligations and state conduct illustrates the inherent limitations of international maritime law when national security imperatives override established navigation rights, a reality made evident by contemporaneous reporting on the crisis.

The question of legality under UNCLOS becomes even more pronounced when Iran’s actions are examined in light of Article 44, which obliges states bordering international Straits not to hamper passage and to provide adequate publicity concerning navigational dangers. Iran’s 2026 declarations discouraging or forbidding navigation through the Strait of Hormuz brought maritime traffic to a standstill.

The resulting disruption was described as the most significant shock to global energy supply since the 1970s, raising serious doubts about Iran’s adherence to its duties under international law. Furthermore, Iranian officials asserted that the Strait remained open only to “non-enemy traffic,” a position incompatible with the non-discriminatory nature of

The resulting disruption was described as the most significant shock to global energy supply since the 1970s, raising serious doubts about Iran’s adherence to its duties under international law. Furthermore, Iranian officials asserted that the Strait remained open only to “non-enemy traffic,” a position incompatible with the non-discriminatory nature of transit passage. Although Iran is not a party to UNCLOS, the rules governing international Straits are widely regarded as reflecting customary international law and are therefore binding on all states irrespective of ratification. For that reason, Iran’s effective suspension of navigation and its associated threats or use of force likely constitute violations of customary maritime obligations.⁹

The crisis illustrated the inability of international law to fully insulate global trade from geopolitical coercion. Within days of the escalation, tanker traffic through the Strait of Hormuz fell by roughly 70 per cent as insurers withdrew war-risk cover and shipowners refused to transit despite having a recognised legal right to passage. Many shipping companies rerouted their vessels around the Cape of Good Hope, incurring higher costs and longer transit times rather than risk passage through the Strait.

Meanwhile, the few vessels that continued to traverse the waterway, mostly those flagged to China, Pakistan and India, were allowed to proceed only after providing extensive cargo and ownership documentation to Iranian authorities. This dynamic underscores that in practice, the legal framework governing navigation cannot prevent a de facto closure when a coastal state possesses both the military capability and the strategic motivation to disrupt transit.

Understanding these legal dynamics is essential when analysing the broader implications of the 2026 crisis for global energy governance and for Nigeria. The events demonstrate that critical chokepoints in the global energy supply chain can be rendered inoperable without a formally declared blockade under the law of armed conflict. Instead, it is sufficient for coastal states to create security conditions that make commercial transit untenable. In the case of Iran, these actions constituted a de facto blockade and represented a breach of the UNCLOS framework, which explicitly prohibits suspension of transit passage even during periods of armed conflict.

This divergence between treaty obligations and state conduct illustrates the inherent limitations of international maritime law when national security imperatives override established navigation rights. While legal rights to navigation remain intact on paper, market reality is ultimately shaped by contractual and insurance mechanisms such as war risk clauses, deviation allowances, and force majeure provisions. However, the overriding determinant remains the international crude oil price, which is largely influenced by global supply dynamics rather than domestic legal or regulatory safeguards.

In this regard, measures such as strengthening supply chain resilience, enhancing domestic refining capacity, and ensuring regulatory predictability under the Petroleum Industry Act 2021, though important, are not in themselves sufficient to shield Nigeria from external shocks. In practical terms, the stabilisation of the Nigerian energy market is contingent on increased crude oil production both domestically and across other Organization of the Petroleum Exporting Countries (OPEC) member states, to moderate price volatility in the international market. Without a corresponding expansion in output, domestic interventions will have limited impact, as Nigeria remains a price-taker in a globally integrated oil market. Accordingly, any comprehensive policy response must prioritise production growth alongside internal reforms, recognising that legal protections and contractual safeguards cannot, in isolation, counteract disruptions driven by global pricing pressures.

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Footnotes

1. Reuters, ‘Global economy faces inflation, growth test amid escalating conflict in Iran – Goldman’ (Reuters, 5 March 2026) (https://www.reuters.com/business/global-economy-faces-inflation-growth-test-amid-escalating-conflict-iran-goldman-2026-03-05/) accessed 6 May 2026.

2. Priyanka Shankar and Reuters, ‘How US-Israel attacks on Iran threaten the Strait of Hormuz, oil markets’ Al Jazeera (1 March 2026) (https://www.aljazeera.com/news/2026/3/1/how-us-israel-attacks-on-iran-threaten-the-strait-of-hormuz-oil-markets) accessed 13 March 2026.

3. Reuters, ‘Iran war: See how tanker traffic collapsed in the Strait of Hormuz’ (6 March 2026)

(https://www.reuters.com/world/middle-east/iran-war-see-how-tanker-traffic-collapsed-Strait-hormuz-2026-03-06/) accessed 27 April 2026

4. U.S. Energy Information Administration, ‘Amid regional conflict, the Strait of Hormuz remains critical oil chokepoint’ (Today in Energy, 16 June 2025) (https://www.eia.gov/todayinenergy/detail.php?id=65504) accessed 23 March 2026.

5. Nadim Kawach, ‘Arab oil capacity dented as Iran war forces output cuts’ (Arabian Gulf Business Insight (AGBI), March 2026) https://www.agbi.com/analysis/oil-and-gas/2026/03/gulf-oil-capacity-dented-as-iran-war-forces-output-cuts/ accessed 6 May 2026.

6. United Nations Convention on the Law of the Sea (adopted 10 December 1982, entered into force 16 November 1994) 1833 UNTS 3, arts 37–44.

7. Abhishek G Bhaya, ‘Who controls the Strait of Hormuz? Iran’s toll plan could reshape global maritime order’ TRT World (10 March 2026) (https://www.trtworld.com/article/a632f8f6753c) accessed 6 May 2026.

8. Julian Lee and Alex Longley, ‘How Iran Has Effectively Closed the Strait of Hormuz’ (Bloomberg, 23 March 2026) (https://www.bloomberg.com/news/articles/2026-03-23/strait-of-hormuz-how-iran-is-blocking-route-as-trump-extends-deadline-to-reopen) accessed 23 March 2026.

9. Ravi Hari, ‘Iran warns of “complete closure” of Strait of Hormuz if US targets its power plants’ (LiveMint, 22 March 2026) (https://www.livemint.com/news/us-news/iran-warns-of-complete-closure-of-strait-of-hormuz-if-us-targets-its-power-plants-11774206458346.html) accessed 23 March 2026.

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