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Emerging markets brace for ripple effects as Iran conflict drives up energy prices
A short‑lived spike may be manageable. A prolonged one could force a deeper rethink of monetary and fiscal strategies across the developing world, Oxford Economics says
- PUBLISHED: Wed 18 Mar 2026, 8:00 AM
Emerging markets are bracing for a year of softer growth as the Iran conflict fuels a surge in global oil and gas prices, raising inflationary pressures and complicating monetary policy decisions across the developing world. Yet, despite the turbulence, analysts expect most economies to remain broadly resilient.
Oxford Economics has trimmed its 2026 emerging‑market growth forecast by 0.1 percentage point to 4.1%, citing a sharp rise in energy costs linked to the crisis. The baseline scenario now assumes oil will average $80 a barrel in the second quarter, around $15 higher than previously expected. “We lowered our aggregate emerging market GDP growth forecast for 2026 by 0.1ppt… to reflect the impact of higher oil and gas prices because of the Iran conflict,” the report notes.
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While the downgrade is modest, the conflict has injected fresh volatility into an otherwise improving inflation outlook. Before the escalation, emerging‑market inflation was expected to continue slowing this year, underpinned by strong exchange rates and easing commodity prices. Instead, the March baseline lifted the 2026 inflation estimate by 0.3 percentage points to 4.4%, with energy‑importing economies such as Poland, the Philippines and Egypt facing the sharpest revisions.
Still, most central banks have some breathing room. Except for Colombia and Russia, inflation remains below the upper end of target ranges, enabling policymakers to maintain — or resume — easing cycles unless price pressures worsen. The report stresses that “EMs are relatively well‑positioned to absorb energy‑related inflation shocks without necessarily triggering rate‑hiking cycles.”
Oxford Economics modelled two short‑lived but severe shock scenarios, with oil rising to $100 and $140 a barrel. Even under the harsher scenario, where GDP growth across 17 major emerging markets drops by up to 0.7 points, the overall impact remains contained. Oil producers such as Nigeria, Kazakhstan and Russia would even benefit from stronger revenues and improved growth.
“The results indicate that central banks in South Africa, the Philippines, Malaysia, Poland, and the Czech Republic are the most likely to hike this year,” said Senior Economist Callee Davis.
“GDP growth across 17 EMs in 2026 falls by around 0.1 percentage points to 0.2 percentage points under the $100 per barrel scenario and 0.4 percentage points to 0.7 percentage points in the $140 per barrel scenario,” she added. “A few non-GCC oil and gas exporters — Nigeria, Kazakhstan, Russia — benefit from stronger growth.”
But the risks are not evenly distributed. Net oil importers — including South Africa, Poland, the Czech Republic, Thailand and the Philippines — are the most exposed to potential defensive rate hikes later this year. South Africa is particularly vulnerable after narrowing its inflation target band in late 2025.
Fuel‑subsidy regimes may soften the blow in parts of Asia and Latin America, helping maintain stability even if global prices remain elevated.
Yet the path ahead hinges on how long the conflict‑driven price shock lasts. A short‑lived spike may be manageable. A prolonged one could force a deeper rethink of monetary and fiscal strategies across the developing world.
Associate Editor Somshankar Bandyopadhyay brings more than three decades of experience to the KT newsroom. Currently, he manages the news production of the business section, ensuring that the top economic and business news of the day reaches its readers.