Iran Conflict Raises New Credit Risks for Emerging Market Sovereigns: Fitch Ratings

The Iran conflict could raise additional challenges for some emerging market sovereigns, through such channels as energy imports, remittances, fiscal subsidies, exchange rates and access to international finance, Fitch Ratings says. Hydrocarbon exporters could see positive effects. Under our baseline, in which the effective closure of the Strait of Hormuz lasts less than a month and major damage to the region’s oil production infrastructure is avoided, risks to emerging market ratings should be contained, but a longer closure or more sustained effects could lead to a more substantial impact.

Oil and gas imports are the most direct channel for contagion from the conflict, given its effect on global energy prices. Net fossil fuel imports are large as a share of GDP for many small emerging markets. Among the larger economies, we estimate they are equivalent to 3% or more of GDP for Chile, Egypt, India, Morocco, Pakistan, the Philippines, Thailand and Ukraine.

Vulnerabilities to higher import costs will be most acute in markets with already stretched financing capacity, such as Pakistan, or with significant current account deficits. In December 2025, Fitch had anticipated a significant current account deficit this year in Ukraine (15.4%), with moderate deficits for the Philippines (3.4%) and Egypt (3.0%).

More protracted high energy prices could add to external strains facing these sovereigns, especially if other stresses emerge, for example, disruption to remittances. External finance risks will be limited where sovereigns are running current account surpluses, as in Thailand.

Prolonged higher energy prices would also increase fiscal strains for governments that have subsidy regimes designed to shield consumers, or that launch similar measures in response to higher energy prices.

A more sustained disruption to global energy supplies from the Gulf than envisaged under our baseline could significantly damage global investor sentiment. We expect this would result in a stronger US dollar and weaken the market for debt issuance, particularly for highly speculative-grade issuers. Higher energy prices could put upward pressure on inflation, affecting monetary policy decisions globally.

These factors are likely to increase the effective cost of servicing and refinancing debt for emerging market sovereigns. However, many frontloaded a significant share of their planned foreign-currency issuance for the year in January-February, enhancing their flexibility against temporary market volatility.

Weaker non-oil activity in Gulf Cooperation Council (GCC) states, reflecting damage to logistics and tourism sectors, will hurt countries where exports to the affected region, or remittance flows from it, are a significant economic driver. Outside the immediate Gulf region, we view Egypt and Jordan as being exposed to tourism and remittance disruption risks, while remittances from the GCC region are important for south Asian countries. Countries with high import concentration from the GCC could also be exposed to supply chain disruption, potentially adversely affecting output and prices.

Effects of the conflict on other commodity markets could be significant for some emerging markets. The Gulf region is an important producer of aluminium, for example. Its role in producing inputs for the fertiliser industry could have medium-term repercussions if it affects global food production and inflation.

There are also idiosyncratic vectors through which the crisis could affect some countries; Azerbaijan, Iraq and Turkiye could be affected if instability in Iran leads to a major outflow of refugees.

For emerging market net hydrocarbon exporters outside the Gulf, such as Angola, Argentina, Azerbaijan, Brazil, Colombia, Ecuador, Gabon, Kazakhstan, Nigeria and Republic of Congo, a prolonged period of higher energy prices could lead to an export and fiscal windfall. The durability of the improvement in external and public finance positions would be a consideration in our rating assessments.