Iran Conflict Heightens Credit Risks for Emerging Markets 📈

A sustained conflict involving Iran and potential disruptions to the Strait of Hormuz pose significant credit risks to emerging market (EM) sovereigns, according to Fitch Ratings. While hydrocarbon exporters may see a fiscal windfall, net importers face multifaceted economic strains. • Energy & Fiscal Impact: High global energy prices directly threaten countries where net fossil fuel imports exceed 3% of GDP. Governments maintaining energy subsidies to shield consumers face increased fiscal deficits and inflationary pressure. • Regional Vulnerabilities: • South Asia: Countries like Pakistan and India are highly exposed due to heavy reliance on energy imports and critical remittance flows from the Gulf region. • Tourism & Trade: Egypt and Jordan face significant risks from potential disruptions to tourism and logistics. • Supply Chains: Potential shortages in aluminum and fertilizer inputs from the Gulf could impact global food production and manufacturing. • Financial Risks: Prolonged instability may trigger a stronger US dollar and weaken international debt markets. This increases the cost of servicing and refinancing debt, particularly for highly speculative-grade issuers. • Mitigating Factors: Many EM sovereigns frontloaded foreign-currency debt issuance in early 2026, providing a temporary buffer against market volatility. However, a closure of the Strait of Hormuz lasting beyond one month would lead to more substantial rating impacts. _Note: Analysis based on Fitch Ratings provisional impact assessments as of March 2026._