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Escalating Middle East conflict threatens Emerging Markets with higher energy prices

 

Escalating Middle East conflict threatens Emerging Markets with higher energy prices
11-10-24 / Duty Editor

Escalating Middle East conflict threatens Emerging Markets with higher energy prices

New York - Given the recent escalation of the Middle East conflict and its potential impact on oil prices, which major emerging markets are most vulnerable to higher energy prices, and how might this affect their economic stability and central bank policies?  

Elijah Oliveros-Rosen, Chief Emerging Markets Economist, S&P Global Ratings, says:

What’s Happening

The escalation of the Middle East conflict, now involving fighting against Hezbollah in Southern Lebanon, and Iran’s subsequent retaliatory missile attack on Israel, could put further upward pressure on oil prices if energy assets are targeted.

Why it Matters

If oil prices rise further, it would threaten to disrupt the current disinflation process of most emerging markets. This could slow, or delay, central banks from reducing interest rates.

This is especially true for major emerging market net energy importers, as the potential for associated weaker external accounts could keep central banks more cautious towards lowering rates to prevent disorderly capital outflows.

Among the major emerging markets, Chile, Hungary, Poland, Turkiye, the Philippines, Thailand, and India are the largest net energy importers. In those cases, during generally high inflation, domestic interest rates are particularly sensitive to higher energy prices.

Looking Ahead

We’re watching: the evolution of the conflict, the nature of Israel’s response to Iran’s missile attack, and the degree of potential U.S. involvement in the conflict.

The Bottom Line

If the uptick in energy prices keeps interest rates high for longer than expected, this would make debt refinancing more challenging, especially for lower-rated entities.

 

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