### 📉 Oil Shock Risks: Sri Lanka Among Most Vulnerable EMs

Analysts warn that the escalating conflict in Iran and potential closure of the Strait of Hormuz could push Brent prices above $100, straining emerging market (EM) stability beyond simple inflation. • Global Market Impact Brent crude surged 7.2% to $83.36/bbl, hitting its highest level since July 2024. Goldman Sachs estimates a supply-driven jump to $85 adds 0.7% to inflation and cuts 0.5% off economic growth across emerging Asia. • External Sector Pressures A 10% rise in oil prices typically deteriorates current account balances by 40-60 basis points. Prolonged high prices threaten to "aggressively de-anchor" inflation expectations and widen deficits globally. • Specific Risks for Sri Lanka Citigroup identifies Sri Lanka, alongside Argentina and Pakistan, as a "low-reserve country" facing heightened risks. Key threats include: • Potential for significant currency slides. • Increased risk of capital outflows. • Pressure on external balances due to high energy import costs. • Regional Context While India is flagged for thin reserves, countries like Thailand and South Korea are noted for high exposure to current account deterioration. Investors are shifting toward the safe-haven US$ as EM equity and currency indexes hit three-week lows.