Finance
Oil shock could strain emerging markets beyond inflation, analysts say
Published by Global Banking & Finance Review®
Posted on March 3, 2026
3 min readLast updated: March 3, 2026
Quick Summary
Analysts warn that the Iran‑Israel conflict and potential Strait of Hormuz blockade could push Brent above $100, exacerbating pressures on emerging markets beyond inflation—hitting current accounts, currencies, capital flows and growth more broadly.
Analysts Warn Oil Shock from Iran Conflict Could Upend Emerging Markets
Impact of Iran Conflict on Emerging Markets and Global Finance
By Kanchana Chakravarty and Rashika Singh
March 3 (Reuters) - The war in Iran and the resulting surge in energy prices will impact emerging markets well beyond inflation to broader pressures on external balances, currencies and capital flows, analysts warn.
Oil Price Surge and Market Reactions
Brokerages, including J.P.Morgan and Bernstein, expect Brent prices to rise above the $100 mark if the conflict continues as Tehran has vowed to close the Strait of Hormuz and said it would fire on any ship trying to pass the crucial shipping route for oil and gas.
Brent crude futures were up $5.63, or 7.2%, at $83.36 a barrel by 1254 GMT after touching their highest since July 2024 at $85.12. [O/R]
Risks to Emerging Market Balances
"A mere 10% rise in oil prices can deteriorate current account balances (for emerging markets) by 40-60 basis points. Prolonged increases would only deepen these deficits," analysts at ING said in a note, adding that Thailand, South Korea, Vietnam, Taiwan and Philippines are the most exposed.
Escalation of Regional Conflict
The U.S. and Israeli air war against Iran widened, with Israel attacking Lebanon and Iran responding with strikes against energy infrastructure in Gulf countries and against tankers in the Strait of Hormuz.
Financial Market Volatility and Country-Specific Risks
Global financial markets have been rattled by the conflict, with both the emerging market equities and currency indexes falling to three-week lows as investors sought the safety of the U.S. dollar.
China and India: Contrasting Vulnerabilities
Higher crude prices pose only a limited risk to China unless the shock is prolonged or escalates sharply, but India, with its thin oil reserves, would be among the most exposed to a sustained supply disruption, analysts said.
Inflation and Growth Projections
Goldman Sachs estimates that a supply driven jump in Brent crude from $70 to $85 would add roughly 0.7 percentage points to inflation across emerging Asia and knock about 0.5 points off economic growth, while widening current account deficits across almost every economy in the region, particularly Thailand, Singapore and South Korea.
Risks to Low-Reserve Countries
Citigroup warned that a prolonged oil shock could "aggressively de-anchor" inflation expectations across emerging markets, with low-reserve countries such as Argentina, Sri Lanka, Pakistan and Turkey facing heightened risks of capital outflows and currency slides.
Currency Strategies Amid Uncertainty
Separately, J.P. Morgan's analysts moved EMEA emerging market foreign exchange to "marketweight" on Tuesday and added Poland's zloty to their list of "underweight" currencies.
(Reporting by Rashika Singh and Kanchana Chakravarty in Bengaluru; additional reporting by Akriti Shah; Editing by Devika Syamnath)
Key Takeaways
- •A 10% oil price rise may worsen emerging-market current account balances by 40–60 basis points, putting especially Thailand, South Korea, Vietnam, Taiwan and the Philippines at risk, with inflation likely to surge, especially in energy‑importing Asian economies. (think.ing.com)
- •Goldman Sachs projects a spike in Brent from $70 to $85 could add ~0.7 percentage points to inflation and subtract ~0.5 points from growth in emerging Asia, further weakening current account positions in Thailand, Singapore and South Korea. (businessinsider.com)
- •Citigroup and ING warn of broader spillovers: Citigroup highlights risks of 'de‑anchored' inflation expectations, capital flight and currency slides in low‑reserve economies like Argentina, Sri Lanka, Pakistan and Turkey; ING underscores systemic strain beyond just inflation. (gurufocus.com)
References
Frequently Asked Questions about Oil shock could strain emerging markets beyond inflation, analysts say
1How could rising oil prices affect emerging markets?
Higher oil prices could weaken current account balances, increase inflation, trigger currency declines, and lead to capital outflows in emerging markets.
2Which countries are most exposed to oil price shocks?
Thailand, South Korea, Vietnam, Taiwan, the Philippines, and India are highlighted as most exposed to sustained oil price rises.
3How much could inflation rise in emerging Asia due to higher oil prices?
Goldman Sachs estimates a $70 to $85 Brent crude jump could add about 0.7 percentage points to inflation in emerging Asia.
4What impact does the Strait of Hormuz conflict have on oil prices?
Escalation in the Strait of Hormuz could push Brent crude prices above $100, disrupting global oil supply.
5What risks do low-reserve countries face during an oil shock?
Countries like Argentina, Sri Lanka, Pakistan, and Turkey risk capital outflows, sharp currency slides, and de-anchored inflation expectations during prolonged oil shocks.