Iran Conflict Poses New Credit Risks for India, Emerging Markets: Fitch

Hydrocarbon exporters could see positive effects amid the West Asia conflict.

Any 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, the rating agency said in a statement Monday.

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, Fitch estimated they are equivalent to 3 per cent 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.

"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," Fitch Ratings said.

A more sustained disruption to global energy supplies from the Gulf than envisaged 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," Fitch noted.

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," the rating agency said.

- ANI