Iran conflict raises risks for emerging economies

March 09, 2026 (MLN): The ongoing Iran conflict could create fresh economic pressures for several emerging market economies by pushing up energy prices, weakening external balances, and tightening access to global financing, according to a report by Fitch Ratings.

The ratings agency noted that countries heavily dependent on imported oil and gas may face the most immediate impact as the conflict drives volatility in global energy markets.

However, nations that export hydrocarbons could benefit from higher commodity prices.

Under Fitch’s base scenario, the disruption to shipping through the Strait of Hormuz would last less than a month and avoid major damage to regional oil infrastructure.

In that case, the overall effect on emerging market credit ratings is expected to remain manageable. A longer disruption or more severe supply shock, however, could significantly increase economic risks.

Energy imports represent the most direct transmission channel for the crisis, given their strong link with global oil and gas prices.

For several emerging markets, fossil fuel imports account for a significant share of economic output.

Fitch estimates that net energy imports exceed roughly 3% of GDP in a number of large emerging economies, including Chile, Egypt, India, Morocco, Pakistan, Philippines, Thailand and Ukraine.

Countries already facing external financing pressures are likely to be most vulnerable to rising import bills.

Pakistan, for example, remains exposed due to limited financial buffers, while Ukraine is expected to record a large current account deficit of about 15.4% this year.

Moderate deficits are also projected for the Philippines and Egypt, increasing their exposure to higher energy costs.

If elevated oil prices persist, they could intensify external financing challenges for these economies, particularly if additional shocks emerge such as disruptions to remittance flows.

Sustained increases in energy prices may also strain government budgets, particularly in countries that maintain fuel subsidy programs to protect consumers from rising costs.

At the same time, higher energy prices could push global inflation upward, complicating monetary policy decisions for central banks.

This environment would likely strengthen the U.S. dollar and make it harder for lower-rated sovereign borrowers to access international debt markets.

According to Fitch, tighter financial conditions would increase borrowing costs and make refinancing existing debt more expensive for emerging market governments.

Nevertheless, the agency noted that many countries have already raised a large share of their planned foreign-currency financing earlier in the year, giving them some buffer against temporary market volatility.

Beyond energy markets, the conflict could also disrupt economic ties between Gulf states and other regions. Slower economic activity in the Gulf Cooperation Council (GCC) economies particularly in sectors such as logistics and tourism could weaken trade and remittance flows.

Countries with strong economic links to the Gulf may therefore face additional risks. Outside the immediate region, Egypt and Jordan could be affected through lower tourism revenues and remittances.

South Asian economies may also feel the impact if remittance flows from Gulf countries decline.

Supply chain disruptions could also emerge for countries that rely heavily on imports from the Gulf region.

The conflict could influence other commodity markets as well. Gulf countries are major producers of aluminium and also play a key role in supplying inputs for the global fertiliser industry.

Any disruption to these sectors could have wider implications for manufacturing, agricultural production, and food inflation worldwide.

Additionally, geopolitical instability in Iran could generate country-specific pressures for some neighboring economies. Nations such as Azerbaijan, Iraq and Türkiye may face challenges if instability triggers refugee flows across borders.

While many emerging markets face downside risks, higher energy prices could provide a significant boost to oil-exporting economies outside the Gulf region.

Countries including Angola, Argentina, Brazil, Colombia, Ecuador, Gabon, Kazakhstan, Nigeria and the Republic of the Congo could benefit from stronger export revenues and improved fiscal balances if oil prices remain elevated for an extended period.

Fitch said that the durability of these improvements in external accounts and public finances would play a key role in shaping future sovereign credit ratings for these countries.

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