A report published Monday by Reuters stated that two months after the US-Israeli war on Iran, the economic fallout is spreading beyond the Middle East, with emerging and developing markets facing rising inflation and increased financial pressures.
The report revealed that emerging Asian markets are particularly vulnerable, as more than 50 percent of their crude oil imports and more than a third of their gas imports typically pass through the Strait of Hormuz.
However, producers in distant regions have benefited from the rise in crude oil prices. The currencies of Brazil and Kazakhstan have jumped by more than nine percent since the beginning of the year, and emerging market stocks have surged to record highs. However, markets dominated by technology companies, such as South Korea and Taiwan, have contributed to this rise, according to the report.
The increase in energy costs, and the accompanying inflationary pressures, have limited the room for maneuver available to central banks to lower interest rates, prompting them to raise borrowing costs in turn. The Philippines raised interest rates last week, while Turkey, Poland, Hungary, the Czech Republic, India, and South Africa have begun to take a tighter stance due to the risk of “spillover”—when wages and other key indirect costs rise.
Emerging market governments already spend hundreds of billions of dollars annually to cushion the burden of rising energy prices on households—and the latest increases are expected to push those figures even higher.
The International Monetary Fund estimates that global fossil fuel subsidies will reach $725 billion in 2024—or 6 percent of global GDP. This is down from 12 percent in 2022, when Russia’s full-scale invasion of Ukraine drove up energy costs.
While the calculations do not exclude emerging markets, the IMF says that the Middle East, North Africa, Europe, and Central Asia region accounts for three-quarters of global subsidies.
The IMF also highlights how severely many of the poorest countries in sub-Saharan Africa are affected by the current situation.
“We are facing a negative supply shock,” said IMF Managing Director Kristalina Georgieva at an event in London last week, stressing that “the worst thing to do is try to inflate demand,” as some countries are doing by providing subsidies to the entire population, rather than just those who need them most.
She expects the IMF will have to provide an additional $20 billion to $50 billion in emergency support due to the crisis.