Analysts warn that conflict involving Iran and the resulting surge in energy costs could significantly impact emerging markets. These effects include pressure on currencies, capital flows, and external balances. Firms such as JPMorgan and Bernstein project that Brent crude could "surpass the $100 per barrel mark" if hostilities persist. Tehran has vowed to close the Strait of Hormuz and issued warnings to vessels attempting to traverse this critical energy transit route. At 12:54 GMT, Brent crude futures rose by $5.63, or 7.2%, to $83.36 per barrel, after reaching a high of $85.12, the highest level since July 2024. Analysts at ING noted that even a 10% increase in oil prices could reduce emerging markets' current account balances by 40 to 60 basis points. They added that prolonged price increases would exacerbate these deficits, with Thailand, South Korea, Vietnam, Taiwan, and the Philippines being the most vulnerable. Airstrikes by the U.S. and Israel against Iran have escalated. Israel has targeted sites in Lebanon, while Iran has retaliated with attacks on energy infrastructure and tankers in the Strait of Hormuz and Gulf nations. The conflict has unsettled global financial markets. Emerging-market equities and currency indices have fallen to three-week lows as investors seek safety in the U.S. dollar. Analysts indicate that rising crude prices pose only a moderate risk to China unless the conflict intensifies or becomes prolonged. India’s limited oil reserves make it one of the most exposed countries to potential supply disruptions. Goldman Sachs estimates that an increase in Brent crude from $70 to $85 per barrel would "raise inflation in emerging Asian markets by about 0.7 percentage points, cut economic growth by roughly 0.5 percentage points, and widen current account deficits in nearly all regional economies—particularly in Thailand, Singapore, and South Korea." Citigroup cautioned that a prolonged oil price shock could "aggressively" destabilize inflation expectations in emerging economies. Nations with low reserves, such as Argentina and Sri Lanka, face heightened risks of capital flight and currency depreciation. In a separate note, JPMorgan analysts added the Polish zloty to their "underweight" list.
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