EBRD weighs support to cushion emerging economies from iran war fallout

EBRD Explores Support Programs for Emerging Economies Hit by Iran War

EBRD Response and Economic Impact of the Iran War

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By Libby George and Karin Strohecker

EBRD Considers Support for Affected Businesses

LONDON, March 16 (Reuters) - Europe's top development bank, the EBRD, is considering support programmes to help businesses in the countries it serves to weather the fallout in the energy, food and financial sectors from the ongoing war in Iran, its president told Reuters.

The war, in its third week, has pressed oil prices above $100 per barrel, cut access to fertilisers, food and goods that transit the key Strait of Hormuz and rerouted air travel. The European Bank for Reconstruction and Development fosters private sector development projects in some 40 countries in Eastern Europe, Central Asia, the Middle East and Africa.

Focus Areas for Support

"We are really already looking at what we can do to support our clients in the countries most definitely affected," EBRD President Odile Renaud-Basso told Reuters.

The support, she said, could focus on helping companies afford higher energy prices, access fertiliser during supply disruptions or keep tourism-focused businesses afloat in the likes of Egypt, Jordan and Lebanon through travel disruptions.

"This is a new shock and we need to be ready to provide support to accommodate this shock," said Renaud-Basso. She gave no further details on what this support could look like.

Concerns Over Remittances and Project Delays

Among issues of concern for the EBRD would be a potential decline in remittances from migrant workers in the Gulf sending money to home countries such as Egypt and Jordan, she said.

The bank is also watching closely for any projects that are delayed, cancelled or lose funding as a result of uncertainty and higher energy costs. Foreign direct investment could fall, too, as investor appetite for emerging markets wanes.

Macro-Economic Challenges and Investment Trends

"The cost of funding has been increasing everywhere ... that could create also some macro challenges for some countries which already had quite a high level share of revenues allocated to debt repayment," she said, noting this was an issue for some Mediterranean countries, Egypt, Tunisia and Sub-Saharan Africa.

The yields on U.S. government debt, baseline for the cost of capital, have risen sharply since the start of the conflict. Meanwhile, Gulf states are reviewing how they deploy trillions of dollars invested by their sovereign wealth funds in anticipation of offsetting the losses triggered by the war.

Energy Security and Diversification

"What is clear ... is that we will see a lot of demand for investment in energy security and diversification of energy," she said.

Countries such as Turkey, which have already invested in energy diversification and renewables, are less vulnerable to external shocks.

"That will be a trend that we are likely to see, and a lot of demand for this kind of investment, for example."

Implications for Ukraine and Regional Stability

Renaud-Basso said the Iran war was also "not helpful for Ukraine" because higher energy prices could boost Russian state coffers and stress Ukraine's balance sheets. The EBRD halted investment in Russia after it invaded Ukraine in 2022.

She also said there "may be some tension on the supply" for weapons for Ukraine. "For us, it's very important to continue to support Ukraine, and that the funding committed to Ukraine by the EU in particular is delivered."

(Reporting by Libby George)