FICC Focus EM Lens: War-Induced Oil Shocks Aren’t Kind to EM Economies
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Mar 13, 2026 Gustavo Medeiros, head of emerging markets research at Ashmore Group, provides concise EM analysis. He explores historical oil shocks and why this one could differ. He breaks down winners and losers by terms of trade. He discusses fiscal strain, monetary policy responses, investor flows, frontier vulnerabilities, and how prolonged Gulf supply disruption could reshape capital allocation.
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Terms Of Trade Determine Winners And Losers
- Oil shocks hit countries unevenly based on terms of trade and balance sheets.
- Net oil importers with weak fiscal positions like Sri Lanka, Pakistan and Kenya are most exposed while exporters like Kazakhstan and parts of Latin America benefit.
Subsidies In Rich Countries Shift Burden To Poorer EMs
- Rich countries that subsidize energy leave poorer EMs to absorb the adjustment.
- If Japan and Korea insulate demand, lower-capacity economies must cut consumption faster, worsening their downturns.
Anchor Inflation Then Retain Flexibility
- Anchor inflation expectations first but prepare to cut later if stagflation persists and growth collapses.
- EM central banks should talk hawkish to protect long-term inflation anchoring while retaining flexibility to ease if incomes fall.