The ongoing conflict in Iran presents potential challenges for some emerging market sovereigns, as noted by Fitch Ratings. These challenges could manifest through various channels, including energy imports, remittances, fiscal subsidies, exchange rates, and access to international finance. Conversely, countries that are hydrocarbon exporters might experience positive effects.
Under the baseline scenario, where the Strait of Hormuz remains effectively closed for less than a month and significant damage to the region’s oil production infrastructure is avoided, the impact on emerging market ratings is expected to be contained. However, a prolonged closure or sustained effects could lead to more substantial repercussions.
The conflict’s most direct impact is likely to be felt through oil and gas imports, given its influence on global energy prices. For many smaller emerging markets, net fossil fuel imports constitute a large portion of GDP. Among larger economies, these imports account for 3% or more of GDP in countries like Chile, Egypt, India, Morocco, Pakistan, the Philippines, Thailand, and Ukraine.
Markets with already stretched financing capacities, such as Pakistan, or those with significant current account deficits, are most vulnerable to higher import costs. In December 2025, Fitch anticipated a significant current account deficit for Ukraine (15.4%), with moderate deficits for the Philippines (3.4%) and Egypt (3.0%).
If high energy prices persist, they could exacerbate external pressures on these sovereigns, particularly if other stresses, such as disruptions to remittances, arise. Conversely, sovereigns with current account surpluses, such as Thailand, may face limited external finance risks.
Prolonged increases in energy prices could also strain fiscal policies for governments with subsidy regimes aimed at shielding consumers or those implementing similar measures in response to rising energy costs.
A more sustained disruption to global energy supplies from the Gulf could severely impact global investor sentiment. This scenario could strengthen the US dollar and weaken the market for debt issuance, especially for highly speculative-grade issuers. Additionally, higher energy prices could exert upward pressure on inflation, influencing global monetary policy decisions.
These factors are likely to increase the effective cost of servicing and refinancing debt for emerging market sovereigns. However, many have already frontloaded a significant portion of their planned foreign-currency issuance for the year in January-February, providing some flexibility against temporary market volatility.
Weaker non-oil activity in Gulf Cooperation Council (GCC) states, stemming from damage to logistics and tourism sectors, will negatively affect countries whose economies heavily rely on exports to the affected region or remittance flows from it. Outside the immediate Gulf region, countries like Egypt and Jordan are exposed to risks related to tourism and remittance disruptions, while remittances from the GCC are crucial for South Asian nations. Countries with high import concentration from the GCC may also face supply chain disruptions, potentially affecting output and prices.
The conflict’s effects on other commodity markets could significantly impact some emerging markets. For instance, the Gulf region is a notable producer of aluminum and plays a critical role in the fertilizer industry, potentially leading to medium-term repercussions for global food production and inflation.
Additionally, specific countries could be affected through unique channels; Azerbaijan, Iraq, and Turkiye might experience challenges if instability in Iran triggers a major refugee outflow.
For emerging market net hydrocarbon exporters outside the Gulf, such as Angola, Argentina, Azerbaijan, Brazil, Colombia, Ecuador, Gabon, Kazakhstan, Nigeria, and the Republic of Congo, sustained higher energy prices could result in an export and fiscal windfall. The long-term improvement in external and public finance positions will be a key consideration in rating assessments.
