S&P: Middle East turmoil pressures emerging market growth

S&P Global Ratings reported that markets are grappling with a high degree of uncertainty regarding the duration and scale of the Middle East war and its potential impact on commodity prices, supply chains, economies, and credit conditions. The agency noted that its baseline outlook carries significant uncertainty as developments continue to be assessed.

In its report, S&P stated that the impact of the war and Middle East disruptions on emerging markets has been uneven so far, largely depending on each country’s exposure to Middle East supply chains and the volume of its net energy imports. It highlighted that four rating actions related to the war have been recorded in these markets.

The agency explained that the supply shock has begun to undermine the positive economic factors and accommodative financing conditions that emerging markets experienced in 2025. This comes as baseline estimates assume the war’s intensity will peak, with some disruptions persisting for several months due to port congestion, insurance delays, and the time required to restart energy production.

S&P indicated that prolonged disruptions could exacerbate the global energy shock, with greater impacts on emerging markets, particularly energy-importing countries. In such scenarios, economic growth could decline by approximately 2 to 3 percent, while inflation could rise by more than 5 percent in some countries.

The agency pointed out that credit pressures are initially concentrated in energy-intensive sectors such as refining, petrochemicals, and aviation, before spreading to manufacturing, logistics, and agriculture.

In a downside scenario, S&P noted that a prolonged disruption of the Strait of Hormuz could trigger a global energy and financial crisis due to sustained supply shortages. It emphasized that approximately 20 percent of global oil and gas supplies passed through the strait before the war began, with more than 80 percent of that volume destined for Asia.

According to estimates, the average price of Brent crude could reach $130 per barrel in 2026 after peaking at $200, before gradually declining to around $100 in 2027. This projection follows a global supply reduction of approximately 10 percent between May and December 2026.

The agency also noted that rising energy import bills would widen current account deficits, while governments might resort to subsidies or tax relief, negatively affecting public finances.

S&P stated that some energy-importing countries are most vulnerable to these impacts, whereas Malaysia and Brazil are relatively less affected due to their status as energy exporters, despite facing indirect repercussions.

It added that energy and food prices account for more than 40 percent of the price index in several emerging markets, with a direct relationship between energy and food prices due to agriculture’s reliance on energy.

The agency anticipated that central banks in emerging markets would tighten monetary policy and raise interest rates to combat inflation, particularly in countries facing currency pressures and capital outflows.

Regarding sectors, S&P clarified that the most affected include refining, petrochemicals, aviation, and utilities, before the impact spreads to other sectors such as manufacturing, logistics, and agriculture.

The agency forecast that the war would accelerate the shift toward energy self-sufficiency, increased strategic reserves, and diversification of energy sources, including expansion in renewable and nuclear energy, while some countries continue to rely on coal.