Energy Shockwave: The Ripple Effect of Iran Conflict on Global Markets

The ongoing conflict involving Iran is causing a rise in energy prices, affecting emerging markets through inflation pressures and impacting currencies and capital flows. Analysts warn of further economic instability if the conflict continues, with Brent oil prices potentially surpassing $100 per barrel, exacerbating issues for vulnerable countries.

The conflict in Iran and the subsequent surge in energy prices threaten to destabilize emerging markets beyond inflationary pressure, impacting external balances, currencies, and capital flows, analysts caution.

Brokerages like J.P. Morgan and Bernstein predict Brent crude prices could rise above $100 if hostilities persist, due to Tehran's threat to close the strategic Strait of Hormuz—a vital conduit for global oil and gas shipments. As a result, Brent crude futures rose $5.63, or 7.2%, reaching $83.36 a barrel by midday GMT, peaking at $85.12, a high not seen since July 2024.

According to ING analysts, a 10% oil price hike can worsen emerging market current account balances by 40-60 basis points, with Thailand, South Korea, Vietnam, Taiwan, and the Philippines most at risk. The U.S. and Israeli airstrikes on Iran, and Iran's retaliatory strikes in the Gulf, including against tankers in the Strait of Hormuz, have rattled global markets, pushing emerging market equities and currencies to their lowest levels in three weeks.