Iran conflict threatens APAC sovereign ratings

March 24, 2026 (MLN): Sovereign credit profiles across the Asia-Pacific region are under mounting pressure due to the ongoing Iran conflict, Fitch Ratings cautioned, highlighting the region’s vulnerability from heavy dependence on imported oil and gas.

Disruptions to key supply routes, including the Strait of Hormuz, could trigger higher energy prices and ripple shows across fertilizer and petrochemical markets, creating a negative shock for trade balances, inflation, and economic growth.

Fitch said energy prices are the primary channel through which the crisis impacts APAC economies. The agency’s baseline forecast assumes Brent crude prices will remain near current levels until March before easing to an average of $70 per barrel in 2026.

However, under a three-month conflict scenario, oil prices could surge to an average of $128 per barrel in the second quarter, with annual prices averaging $100 per barrel.

Such a scenario could put additional rating pressure on net fossil fuel importers in South and Southeast Asia, including India, Korea, Pakistan, the Philippines, the Maldives, and Thailand, depending on their fiscal and external buffers.

“APAC sovereigns’ heavy reliance on energy imports amplifies vulnerability to supply shocks,” Fitch noted.

While net energy exporters like Australia and Malaysia may partially benefit from higher hydrocarbon revenues, no country is expected to see a net credit improvement due to broader inflationary and growth challenges.

Fiscal policy will be critical in stabilising the region, but government buffers have thinned since the COVID-19 pandemic.

While some economies, including Singapore and Macao, maintain substantial fiscal cushions, the median debt to GDP ratio for APAC sovereigns is projected at 50% in 2026, up from 37.8% in 2019.

Persistent fiscal deficits and potential increases in fuel, electricity, or fertilizer subsidies could slow consolidation and increase contingent liabilities for state-owned energy and utility companies.

Beyond energy, Fitch flagged risks from exchange rate depreciation, tighter financing conditions, shifts in remittances, and capital flow volatility.

External buffers will remain a key differentiator: countries with strong reserves and resilient financing structures may weather the crisis better, whereas frontier markets with refinancing needs could face heightened vulnerability.

Supply-chain disruptions are also likely to extend beyond crude oil and LNG. Shipping bottlenecks and feedstock constraints have forced some Asian petrochemical producers to reduce output, exacerbating inflationary pressures.

Administrative measures, including reduced workdays and remote work, may help curb near-term fuel demand but could signal broader economic intervention if disruptions persist.

China’s phosphate fertilizer export restrictions through mid-2026 and potential higher natural gas prices in the Gulf pose additional risks to regional food security.

Higher fertilizer costs could strain subsidy programs, reduce crop yields, and elevate living costs, particularly in lower income emerging markets, heightening the potential for social unrest.

Fitch’s assessment emphasizes the urgent need for APAC governments to bolster fiscal and external buffers and carefully manage energy and food-related policy interventions as the Iran conflict continues to unfold.

Copyright Mettis Link News