What Does $100 Oil Mean for Emerging Markets?

A month into the Gulf conflict, the Strait of Hormuz remains under the effective control of Iran. While Tehran has said it will allow "non-hostile" vessels to transit, ships linked to the US and Israel remain excluded and some operators have reportedly paid up to US$2 million to secure safe passage. With an estimated 10 million barrels per day of supply still disrupted, the price of oil continues to whipsaw around the psychological US$100 per barrel mark on conflicting headlines about a potential resolution.

The initial assumption that the US/Israeli attack on Iran would follow the Venezuelan model of swift regime change has not held and we believe the war will likely outlast market expectations.

We believe the conflict has introduced a permanent security premium into oil prices that markets have yet to fully internalise. The implications for emerging markets are significant and will create winners and losers.

Three factors underpin our view.

First, Iran's deeply institutionalised power structure makes regime collapse from airstrikes alone virtually impossible. Without a full ground invasion, which the US has ruled out at the time of writing, the most probable outcome is a more radicalised, security-dominated regime, not a compliant successor government.

Second, Iran has deliberately turned the Strait of Hormuz into an active bargaining chip, a dimension the US never planned to address. Low-cost drones and dispersed launch positions allow Iran to threaten tanker traffic indefinitely, and the Houthi precedent demonstrates that the US has limited ability to secure contested waterways by force alone.

Third, and perhaps most critically, a ceasefire does not restore safe passage. The path from one to the other is long, uncertain and without historical precedent at this scale. This "exit problem" is, in our view, the most underappreciated risk in energy markets today. Recent moves by Iran to selectively reopen the Strait on its own terms, while its parliament prepares legislation to formalise new transit rules, suggest the pre-war status quo will not return, even if hostilities end.

The US$100 thesis

The question investors should now confront is whether the energy market has undergone a structural repricing. Just as US$50 a barrel became the anchor price in the post-shale era, US$100 oil may now represent the new floor in a world where the most critical maritime energy chokepoint carries a permanent security premium.

The implications are unevenly distributed.

• Inflation: a sustained energy shock re-anchors inflation expectations higher, complicating central bank easing trajectories and forcing markets to reassess the timing of rate cuts
• Growth: energy-intensive sectors face margin compression and demand destruction, with the risk of stagflation rising the longer oil stays elevated
• Emerging markets: net energy importers face acute balance-of-payments pressure, while net exporters outside the Gulf benefit in the near term but remain exposed to slowing global demand

Emerging market impact

Potential losers

Turkey faces several key challenges. It is geographically close to the conflict, it imports more than 70% of its energy and its main export destination, Europe, is also likely to face higher energy costs, raising the risk of weaker foreign shipments. We calculate that a US$25 per barrel increase from pre-conflict levels would add US$15–18 billion to the current account deficit, equivalent to 1.3-1.5% of gross domestic product (GDP). This is based on Turkey's 2024 energy import bill of US$65 billion. 

We estimate the Central Bank of Turkey (TCMB) has already burned US$23.7 billion in reserves defending the Turkish lira. The rate-cutting cycle has been halted and the disinflation process delayed once again.

We expect the government to stick to its managed depreciation path for now, but a protracted oil price shock would, in our view, add significant risks to its stabilisation plan, including the potential need to replace Finance Minister Simsek, given President Recep Tayyip Erdogan's political need to keep energy prices low while pursuing constitutional reform. We think there is a consensus view that underestimates the risk of a forced abandonment of the managed depreciation path.

India is the world's third-largest oil importer, sourcing roughly 85% of its crude from abroad. We estimate that a sustained oil price at US$100+ per barrel would worsen the current account deficit by approximately 1% of GDP, from roughly 0.7-0.8% to 1.7-1.8% of GDP.

The Reserve Bank of India (RBI) would face a difficult trade-off between growth and inflation, but we think the Indian rupee would likely be allowed to weaken.

Thailand is a net oil importer averaging over 900,000 barrels per day and 12-14 billion cubic metres per year of liquefied natural gas (LNG). Current higher oil prices would add approximately 1.6% of GDP to the energy bill.

The country is also heavily reliant on tourism, and Middle Eastern instability plus higher airfare costs could dampen travel flows, potentially adding another 1.8%-2.2% of GDP to the current account deterioration.

Critically, Thailand is the only major emerging market economy in our analysis that risks flipping from a current account surplus of roughly 2-3% of GDP to a deficit of roughly 1-2% of GDP. This shift from surplus to deficit may attract negative attention from ratings agencies and portfolio flows, making Thailand, in our view, among the most actionable calls in the emerging markets complex.

South Africa presents a mixed picture. Higher metals prices would partially offset the increased energy import bill and weaker tourism flows, but we still expect a moderate current account deterioration of approximately 1% of GDP.

However, the South African rand is highly sensitive to both European currency weakness and broader shifts in global risk appetite, which makes it particularly vulnerable to a protracted conflict. South Africa's structural fiscal and electricity challenges compound this exposure.

Egypt is in a particularly vulnerable position, exposed to the risk of five simultaneous hits to its external accounts. Egypt's current account deficit was running at roughly 4-5% of GDP before the conflict. We estimate the war could add another 4-4.3 percentage points on top of that, pushing the total deficit to the 8-9% range in 2026.

The potential damage is broad-based: the higher energy import bill alone adds 1.2% of GDP. Lost Suez Canal revenues account for another 0.7-0.8%. Tourism losses could add 1.0-1.4%. Remittances from the Middle East, which could fall by 15-20%, would shave off a further 0.7-1.0%. Rising food import costs add another 0.2-0.4%.

All of this against a thin stock of international reserves of US$52.7 billion, or just 13% of 2026 GDP. Egypt may need another International Monetary Fund (IMF) programme expansion or Gulf Cooperation Council (GCC) bilateral support, which is ironic given that GCC states are themselves under pressure. Egypt stands, in our view, as the mirror opposite of Brazil in this framework.

Potential winners

Mexico is geographically insulated from the Middle East and sits adjacent to the US. Supply chains are already diversifying away from conflict zones, reinforcing existing nearshoring trends. The Bank of Mexico's (Banxico) high real interest rates provide a cushion for the Mexican peso, supporting its attractiveness as investors reprice risk across emerging markets.

Brazil is, in our view, the cleanest emerging market long in this scenario. Its energy balance could improve the current account by 0.5% of GDP, while the food commodity balance would add another 0.3-0.4% of GDP, for a total improvement of 0.8-0.9% of GDP.

The terms-of-trade improvement would create a government revenue windfall of 0.5-0.8% of GDP, assuming gasoline subsidies remain limited. The Central Bank of Brazil's (BCB) credibility is relatively intact. The combination of energy self-sufficiency, food export tailwinds and central bank credibility makes Brazil the standout.

Colombia is a net oil and coal exporter. A permanent US$100 oil price could add US$4.5 billion to the current account balance, or 1.2% of GDP. The windfall would also create much-needed fiscal space, easing some of the current funding pressures. Colombia's net gains, however, could be tempered by upcoming presidential and congressional election uncertainty.

Malaysia is a net exporter of palm oil and LNG. Should the current oil price shock become permanent, we expect the current account to improve from the 3-3.5% range to 4.5-5.5% of GDP.

Petronas, Malaysia's state oil and gas company, benefits from elevated energy prices and could generate a fiscal windfall of over 1% of GDP. Crucially, Malaysian LNG ships from Bintulu on the Pacific coast, completely bypass the Strait of Hormuz. If Qatari LNG remains disrupted, Malaysia would become a premium non-Hormuz supplier to Asian buyers in Japan, South Korea, China and Taiwan, driving the LNG windfall well beyond our base case estimates. This Pacific-coast bypass dynamic represents, in our view, the most differentiated positive exposure in the emerging market universe and could deliver an outsized positive outcome for the Malaysian ringgit.

Hard currency debt

Most emerging market bond funds are benchmarked against the J.P. Morgan Emerging Markets Bond Index Global (EMBIG), which includes Gulf Cooperation Council sovereign debt. This means that many investors hold exposure to Saudi Arabia, the UAE, and Bahrain whether they actively chose to or not. In the current environment, geopolitical proximity to the conflict and energy dynamics make this passive exposure a source of risk.

On the losing side, Saudi Arabia and the United Arab Emirates on the investment-grade side, and Bahrain in the high-yield segment, face the most direct pressure. Neighbouring countries such as Turkey and Egypt are also adversely impacted, driven by both regional proximity and the energy price shock.

Potential winners, in our view, are concentrated in Latin America, benefiting from commodity-exporter status and proximity to the US with a demonstrated willingness to work with the West and multilaterals. Relative winners include Mexico, Brazil and Ecuador.

Summing up

At the time of writing, energy prices continue to whipsaw around conflicting headlines and the situation remains fluid.

However, the analytical framework presented here does not depend on a specific military outcome. Whether the conflict escalates further or moves toward a ceasefire, the security premium embedded in Gulf energy flows is unlikely to dissipate quickly. The gap between a ceasefire and the restoration of safe maritime transit remains the single most important variable for energy markets.