US-Iran tensions could impact emerging market economies, Fitch Ratings warns

Emerging market economies may face greater economic and financial challenges due to the ongoing tensions between the United States, Israel, and Iran, according to a warning from Fitch Ratings, a global credit rating agency. In a report titled “Iran conflict raises new credit risks for emerging market sovereigns,” Fitch pointed out that disruptions to energy supplies from the Gulf could severely impact countries that rely on imports. The report also mentioned that remittances, exchange rates, and investor confidence in affected emerging markets might be under strain. Fitch stated, “If energy flows face more significant disruptions than we currently anticipate, global investor confidence could be greatly harmed.” They added that such shocks could intensify fiscal pressures and balance-of-payments issues for vulnerable governments. The agency warned that if energy prices surged or capital flows became unstable, it could negatively affect the credit profiles of emerging markets, leading to higher borrowing costs and additional pressure on public finances. Fitch’s alert highlights how connected geopolitical risks are to the stability of emerging markets, showing how sensitive these economies are to shocks in crucial sectors like energy. The report suggested that this situation could strengthen the US dollar and weaken the market for debt issuance, especially for those with lower credit ratings. “Increased energy prices could lead to higher inflation, influencing monetary policy decisions worldwide,” the report noted. Fitch identified oil and gas imports as the most direct way the conflict could affect global energy prices.