Strait of Hormuz disruption: How will it impact emerging markets?

• Less than 2 months' disruption of the Strait of Hormuz could push average EM inflation higher by +0.8-1.0p with limited recessionary effects – apart from GCC countries.
• As the conflict drags on, Asian economies could face supply disruptions on top of stronger inflationary shocks, given that 56% of their oil imports and 30% of their total gas imports originate from the Middle East.
• Beyond three months of closure for the Strait of Hormuz, many more EM countries are at high recession risk as they run triple deficits (fiscal, current account, energy).
• With energy-driven inflation risks rising, many EM central banks are likely to remain on hold for longer despite slowing growth. A prolonged conflict could see inflation expectations repricing more forcefully across EM curves, steepening local yield curves and delaying monetary easing cycles.

Read this article for an in-depth look at how the closure of the Strait of Hormuz may impact emerging markets, fixed income assets, and energy costs.