A war far away, an economy at risk

By E. N. Kwame Nkrumah, Ph.D,

In an increasingly interconnected global economy, geopolitical conflicts rarely remain confined to the regions in which they originate. Modern trade networks, energy supply chains and financial markets ensure that events occurring thousands of kilometres away can exert measurable economic effects across continents. For emerging economies in particular, the consequences of distant geopolitical tensions often manifest through rising commodity prices, exchange-rate volatility and disruptions to international trade flows. Many African economies for instance remain structurally dependent on imported fuel, food commodities, machinery and other manufactured goods that are traded through global markets.

Because these essential inputs are largely sourced from outside the continent, fluctuations in international energy prices, shipping costs and currency markets can quickly transmit into domestic economic conditions. As a result, geopolitical tensions in strategically important regions such as the Middle East, particularly those that influence global oil supply or major maritime trade routes tend to generate immediate economic repercussions across African countries.

The recent escalation of hostilities involving Iran, Israel and the United States has once again underscored this global economic interdependence. What initially appears to be a regional security confrontation carries implications that extend far beyond the battlefield, highlighting the degree to which modern economies are entangled with events thousands of miles away. Within hours of the first strikes, Brent crude oil prices surged by over (10%) and briefly traded above $80 a barrel, notching the biggest single?day jump in almost three years. The Strait of Hormuz, a narrow sea route through which roughly one fifth of the world’s oil supply travels, became a focal point as Iranian attacks and retaliatory strikes forced hundreds of ships to drop anchor.

Following a drone strikes and fires linked to the conflict, several major ports and refinery operations in the Gulf temporarily suspended or scaled down activities as a precautionary measure, interrupting fuel processing and maritime loading operations. Such disruptions immediately heightened concerns about the stability of global energy supply chains and intensified uncertainty within commodity markets. As geopolitical risk increased, financial markets reacted swiftly.

Investors moved capital toward traditional safe-haven assets, particularly the U.S. dollar and gold, while global equity markets experienced heightened volatility. Major stock indices recorded noticeable fluctuations, and market volatility indicators rose sharply by nearly 17 percent within a few days, reflecting growing investor anxiety about the potential economic consequences of a prolonged conflict in one of the world’s most strategically important energy regions. Obviously, these immediate global tremors underscore how quickly a regional conflict can unsettle world commerce.

More specifically for countries in Africa, the consequences of such geopolitical tensions can be profound. Many African economies remain highly exposed to global commodity prices and external trade shocks considering that over 83 percent of African countries qualify as commodity-dependent, accounting for more than 60 percent of Africa’s merchandise export earnings. Even in worst case scenario, Nigeria for example earns more than 96 percent of its export revenues from commodities, primarily oil, while South Sudan for instance derive almost all export income from crude oil exports. When global energy or mineral prices fluctuate, these economies quickly experience fiscal and macroeconomic impacts because government revenues, exchange rates, and investment flows depend heavily on those commodities.

It is also conspicuous fact that African trade patterns further reinforce exposure to external shocks. The continent imports a significant share of its manufactured goods, machinery, refined fuels and technology products (over 80%) from outside the region. This structure means that global disruptions whether caused by geopolitical conflicts, commodity price spikes, shipping bottlenecks or financial market turbulence can rapidly affect export earnings, currency values and domestic prices across African economies.

Ghana occupies a particularly complex position in the global energy system. The country is an oil producer but remains heavily dependent on imported refined petroleum products. This structural imbalance creates a strong transmission channel between global oil prices and domestic inflation. Empirical research indicates a positive long-run relationship between crude oil prices and inflation in Ghana, meaning oil price shocks tend to feed directly into consumer prices.

The limited capacity at the Tema Oil Refinery means that Ghana imports most of its petrol, diesel and liquefied petroleum gas. In 2023 the country imported refined petroleum products worth about $4.9 billion, while oil imports had already reached roughly $3.7 billion by August 2025. Domestic energy demand continues to expand, with petroleum consumption rising to about 6.46 billion litres in 2024, and over 3.6 billion litres recorded within the first half of 2025 alone.

This sustained growth in demand, combined with limited domestic refining capacity, means Ghana remains heavily reliant on imported fuel to power transportation, households and industry. Consequently, fluctuations in global oil prices are rapidly transmitted into domestic pump prices under the country’s deregulated fuel pricing system, exposing the broader economy to external energy shocks.

Ghana’s recent domestic economic indicators show both progress and fragility. With petrol selling for about GH¢10.46 and diesel for GH¢11.42 per litre at the start of March, any sustained rise in global oil prices will quickly translate into higher transportation costs and thus broader inflation. The Ghana cedi, already sensitive to shifts in investor sentiment, could weaken further as traders flee to the U.S. dollar, magnifying import costs. Ghana’s heavy reliance on imported LPG, historically more than 64 percent of the domestic supply also leaves households vulnerable to price spikes. Thus, the channels through which this geopolitical crisis could permeate Ghana’s economy are wide-ranging.

Let us start with Energy costs, which in my opinion is the most obvious. A sharp rise in crude prices directly increases pump prices, raising costs for transportation, agriculture and industry. This inflationary pressure is compounded by currency dynamics; when global investors seek refuge in the dollar, the cedi depreciates, making imported goods more expensive. Second is supply chains, which obviously present another vector. Disruptions in Gulf shipping routes have already forced more than 150 vessels to anchor near the Strait of Hormuz and closed major logistics hubs.

For Ghana, which imports pharmaceuticals, fertilizers and consumer goods through global maritime corridors, higher freight rates and longer transit times could raise costs and delay deliveries. There could also be some level of Fiscal pressures as well. The government may be compelled to cushion consumers through subsidies or reduced taxes, an option that could widen budget deficits and straining foreign?exchange reserves. However, with public debt levels already elevated, there is limited space for such interventions.

The horrible fact remains that, the scale of the potential shock depends on how long and how severe the conflict becomes. In a short?lived scenario where hostilities subside and oil prices stabilise near eighty dollars per barrel, Ghana might endure a five to ten percent increase in pump prices. Inflation could drift toward five percent by mid?year, and the Bank of Ghana might delay further interest?rate cuts. A more protracted conflict that pushes Brent crude toward ninety or even a hundred dollars per barrel could drive domestic fuel prices up by fifteen to twenty?five percent and lift inflation into the seven to ten percent range, pressuring the cedi and household budgets.

An extreme outcome, involving significant disruption to traffic through the Strait of Hormuz an event analysts believe is unlikely yet probable could trigger a thirty percent or greater increase in fuel prices, catapulting inflation well into double digits and risking shortages of imported goods. As estimated by Goldman Sachs, a sustained ten percent rise in oil prices raises the consumer price index by about twenty?eight basis points. Given that global prices have already jumped more than ten percent, inflationary pressure in Ghana could be expressive and may be highly reflective in the months ahead.

Regardless of how the conflict ultimately evolves, the country cannot afford a return to the instability that characterised the 2022–2023 economic crisis, an episode the World Bank described as largely driven by self-inflicted domestic policy vulnerabilities rather than purely external shocks. In the face of current global uncertainty, the responsibility now rests with the new administration to demonstrate greater policy foresight and macroeconomic discipline. Rather than repeating reactive policy responses that amplified past shocks, the government must adopt a more measured and forward-looking approach. In a volatile global environment, economic leadership must move several steps ahead of events rather than respond only after pressures have already materialised.

Ghana has already explored importing refined petroleum from Nigeria’s Dangote refinery, and authorities have adopted competitive tender systems to reduce LPG import premiums. Expanding such arrangements can lower freight costs and lessen dependence on distant markets. If not already in existence, building a strategic fuel reserves could also provide a buffer against temporary supply disruptions, while accelerating plans to restart and upgrade domestic refining capacity to reduce long?term import reliance. As noted, around 3.5 billion dollars have been already committed to infill drilling and reservoir management to stabilise oil output, and a second gas processing plant targeting 150 million standard cubic feet per day has been approved. Ghana’s 3.4 billion dollar renewable?energy strategy also aims to add 1.4 gigawatts of new capacity and build hundreds of mini?grids, signalling a commitment to diversify the energy mix.

During periods of high commodity prices, windfall revenues from Ghana’s own crude exports and gold production (i.e. gold prices have risen around 25 percent this year) should be saved in stabilisation funds rather than spent, providing resources for future shocks. Maintaining prudent fiscal policy and strengthening foreign?exchange reserves will help counteract currency volatility. In the longer term, deepening regional trade under the African Continental Free Trade Area can reduce reliance on global shipping routes that pass through volatile regions. Ghana should also invest in port infrastructure and diversify import corridors to limit exposure to bottlenecks in the Gulf.

Undoubtedly, the Iran–Israel–USA conflict is a stark reminder that economic shocks in the twenty?first century are often transmitted through complex global networks. With global oil prices surging up to 13 percent and one-fifth of the world’s energy supplies transiting through a conflict zone, Ghana’s dependence on imported refined fuel makes it exceptionally vulnerable. The most pressing danger is not direct military involvement but the inflationary and fiscal consequences of higher energy prices and disrupted trade. The country’s recent progress in taming inflation and stabilising the cedi could be undone if global oil markets remain volatile and policymakers respond reactively rather than strategically.

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