Global Market: Emerging markets face mounting economic pressure amid Iran war disruptions

Two months after the outbreak of the Iran war, the economic fallout is spreading well beyond the Middle East, placing increasing strain on emerging and developing markets, according to a report by Reuters. Data and analysis indicate rising inflation, growing fiscal pressures and mounting disruptions to trade flows, highlighting the broader global impact of the conflict.

The most immediate economic damage is being felt in the Middle East and neighboring regions. Qatar recorded a trade deficit of $1.2 billion in March, the first in its history, after the closure of the Strait of Hormuz sharply reduced exports and significantly curtailed imports, as per the report. Economists at JPMorgan project that Qatar’s economy could contract by as much as 9% this year following damage to key liquefied natural gas infrastructure, a deeper decline than earlier international forecasts for the region.

International financial institutions have also revised their outlook. Growth projections for emerging and developing economies have been lowered to 3.9% from 4.2%, reflecting the intensifying pressures linked to the conflict, according to Reuters. The heavy reliance of many Asian economies on energy shipments through the Strait of Hormuz leaves them particularly exposed to disruptions in supply chains.


At the same time, some commodity-producing countries farther from the conflict zone have benefited from higher oil prices. Nations such as Brazil and Kazakhstan have seen currency appreciation, while equity markets in several emerging economies have rebounded strongly, supported in part by gains in technology sectors in Asia.

Rising energy costs are now feeding into broader inflationary pressures, limiting central banks’ ability to ease monetary policy. Instead, several countries have begun tightening or signaling a more cautious stance. The Philippines recently raised interest rates, while policymakers in countries including Turkey, Poland, Hungary, the Czech Republic, India and South Africa have adopted a more hawkish tone due to concerns about secondary inflation effects, Reuters reported.

Market expectations also point toward tighter financial conditions in many emerging economies over the coming months. Analysts cited by Reuters note that increasing inflation and risk aversion among investors could lead to higher borrowing costs, further complicating economic management.

Governments are facing additional strain as they attempt to shield households from rising fuel costs. Global fossil fuel subsidies reached an estimated $725 billion in 2024, representing a significant share of economic output, according to Reuters. A large portion of these subsidies is concentrated in regions already heavily affected by the crisis, including the Middle East, North Africa and parts of Europe and Central Asia.

Certain lower-income countries with recent histories of financial instability are particularly at risk. Egypt is experiencing rising food and fuel costs alongside potential declines in tourism revenue and remittances, both key sources of foreign income, according to the Reuters report. Currency depreciation has further increased the burden of external debt repayments.

Sri Lanka, still recovering from its 2022 default, has reintroduced fuel subsidies and secured temporary flexibility in its financial arrangements to manage the renewed pressure. Pakistan’s foreign exchange reserves remain limited relative to its import needs, raising concerns about its ability to withstand prolonged external shocks, Reuters added.

In Sub-Saharan Africa, the situation is especially fragile in countries that depend heavily on imported oil while already facing constrained public finances. Elevated energy prices are intensifying fiscal pressures, making it more difficult for governments to maintain stability without external support.

International institutions are preparing for a growing need for financial assistance as the crisis continues. Estimates suggest that tens of billions of dollars in additional emergency funding may be required to support the most affected economies.

Overall, the economic consequences of the Iran war are proving to be both widespread and persistent, with emerging markets facing a complex mix of inflationary pressures, fiscal challenges and external vulnerabilities that could deepen if the conflict endures.