Fitch Warns: Iran Conflict Threatens Emerging Markets with Energy Shocks, Remittance Cuts and Soaring Debt Costs

 Escalating conflict between the United States, Israel and Iran is set to create fresh credit risks for emerging market sovereigns, with energy-importing nations facing the biggest threat from higher oil prices, disrupted remittances and tighter global financing conditions, Fitch Ratings has warned.

In a report titled “Iran Conflict Raises New Credit Risks for Emerging Market Sovereigns,” released on March 6, the global credit rating agency said the crisis — triggered by US-Israeli strikes on Iran on February 28 and subsequent Iranian retaliation — could ripple far beyond the Middle East.06a98c

“Oil and gas imports are the most direct channel for contagion from the conflict,” Fitch stated, noting that net fossil-fuel imports already equal 3% or more of GDP in several large emerging economies, including India, Egypt, Pakistan, the Philippines, Thailand, Chile, Morocco and Ukraine.

Countries with stretched public finances or large current-account deficits — such as Pakistan and Ukraine (projected deficit of 15.4% of GDP) — are particularly exposed. Prolonged high energy prices would pile pressure on governments that subsidise fuel or electricity, while also feeding inflation and forcing tighter monetary policy worldwide.

Remittances from Gulf Cooperation Council (GCC) countries, a lifeline for many South Asian and North African economies, could shrink if non-oil activity in the region suffers from damaged logistics and tourism. Egypt and Jordan stand out as especially vulnerable on this front, while supply-chain disruptions from GCC imports could hit output and prices in several other markets.

A stronger US dollar and reduced appetite for emerging-market debt — especially among speculative-grade issuers — would raise borrowing costs and refinancing risks. Many sovereigns have already front-loaded their 2026 foreign-currency issuance, giving them some short-term breathing room, but Fitch cautioned that “more sustained disruption to energy flows than currently assumed in our baseline scenario could significantly damage global investor sentiment.”

The agency’s baseline assumption is that any effective closure of the Strait of Hormuz will last less than a month and that major damage to regional oil infrastructure will be avoided. Under this scenario, rating impacts on emerging markets should remain contained.

However, a longer closure or broader fallout “could lead to a more substantial impact,” the report said.

Not all emerging markets will suffer. Net hydrocarbon exporters outside the Gulf — including Nigeria, Angola, Brazil, Colombia, Kazakhstan, Azerbaijan and others — could enjoy an export and fiscal windfall from sustained higher oil prices. Fitch noted that the durability of any improvement in their external and public-finance positions would be a key factor in future rating decisions.

The agency also flagged secondary risks, such as higher aluminium and fertiliser prices affecting food inflation, and potential refugee outflows that could strain Azerbaijan, Iraq and Türkiye.

The warning comes as global oil prices have already surged past $90 per barrel, putting the emerging-markets recovery that began in early 2026 to a severe test.

Analysts say the Fitch assessment underscores how quickly geopolitical shocks in the energy heartland can undermine the fragile post-pandemic gains of import-dependent developing economies — from South Asia to Latin America and sub-Saharan Africa.

For policymakers in vulnerable nations, the message is clear: prepare for higher energy bills, possible subsidy reform, and renewed pressure on exchange rates and debt servicing.

Fitch will continue to monitor the duration and intensity of the conflict, with any material deviation from its baseline scenario likely to trigger rating reviews across affected emerging markets.