U.S.-Iran Deal: How Africa Must Prepare for the Next Global Energy Shock

With the deal setting the stage to bring an end to hostilities, hopes across Africa are high that some of the worst impacts may soon subside.  Already, oil prices have fallen to their lowest levels since the early days of the conflict, and stock markets across Asia and Europe have responded positively.

A distant crisis that hit home 

The agreement may signal the end of a period of uncertainty. But for millions of Africans living in countries that rely on imported fuels to power their economies, the conflict has already created severe and long-lasting impacts. And even those in oil and gas-producing nations were not immune. Nearly 600 million people across the continent still lack access to electricity, and the World Economic Forum noted that energy bottlenecks and power shortages cost Africa an estimated 2 to 4 percent of GDP annually. As such, any crisis that disrupts energy supply compounds an existing deficit that holds back growth, jobs and investment for many Africans. 

The conflict made that burden heavier for households and businesses, and extremely challenging for policymakers to manage. Higher energy prices drove up transport and food costs, forcing governments to choose between passing those costs on to citizens or absorbing them through measures that placed additional strain on already stretched public finances. 

Ghana, where around two-thirds of electricity comes from gas-fired power plants and almost all refined fuel is imported, felt the shock when pump prices rose by 10-26 percent, threatening the government’s budget assumptions of 4.8 percent growth and a 13-month disinflation streak. The government introduced fuel subsidies, initially for a month, which were later extended for two additional months. While this partially cushioned the impact on Ghanaians, the full impact will only become clear over time, as this use of public funds for fuel subsidies will mean tough choices need to be made around essential public services. 

Nigeria's experience was more mixed. Higher oil prices boosted export earnings, but despite the Dangote Refinery reducing fuel import dependence from around 90 percent to 40-50 percent, the country still saw a cost-of-living crisis worsen by approximately 17 percent.

If anything, the crisis has shown that while the impacts differ, both African producer and consumer countries are vulnerable to disruptions beyond their borders. But the vulnerability did not begin with the Middle East conflict. It reflects deeper structural realities of fiscal systems built around oil revenues, energy systems that rely on imported fuel and limited capacity to absorb shocks without passing costs to citizens. 

Building resilience through economic and energy diversification 

The immediate response to the crisis focused on managing its effects. But one important lesson African governments must take from this episode, as they plan their energy and fiscal future, is that subsidies, tax reductions and emergency interventions can cushion the immediate impact of higher oil prices, but they do little to address the underlying vulnerabilities that make such crises disruptive. Ghana’s subsidies were short-lived; Nigeria, despite significantly reducing its import dependence, still saw pump prices feed into a deepening cost-of-living crisis. Partial solutions to a structural problem only go so far. 

The path to genuine resilience in the medium term lies in diversification at every level: away from fiscal dependence on crude exports, away from reliance on imported refined products and away from an energy mix dominated by fossil fuels. Decentralized renewable energy through solar and storage can reduce exposure to future oil price shocks while advancing energy access ambitions across the continent. Ghana’s push toward expanded gas-to-power investment and renewables points in the same direction — a recognition that for many African countries, energy transition and energy security are not competing priorities but part of the same resilience agenda. 

Diversification alone, however, is not enough without better management of the revenues that flow from natural resources. Governments must ensure that windfall gains are saved in sovereign buffers rather than used for recurrent expenditure, and that stronger fiscal rules and transparent revenue management are in place to ensure genuine resilience. 

There is also a need for stronger regional energy cooperation. The fragmented energy systems across the continent leave individual countries more exposed than they ought to be. Governments and regional bodies must ensure greater use of regional power pools and cross-border gas networks to enable flexibility when global supply chains are disrupted again.

Preparing for the next global energy shock

This week’s deal will ease pressure on global energy markets and that matters for Africans who have spent the past four months absorbing high energy, transport and food costs. But it is also a reminder of the vulnerabilities that African economies face. 

The countries that emerge stronger will be those that use moments like this to make longer-term changes. That means investing in domestic energy capacity and renewables, building fiscal buffers during good times, managing resource revenues wisely and strengthening regional systems that can help countries support one another during a period of disruption. 

There is an old saying “never waste a crisis”. The next energy crisis may not come from the Middle East. But it will come from somewhere. The lesson over the past four months is that resilience cannot be built during a crisis. It must be built before one arrives and the window to act on that understanding is now.