How the war in Iran is impacting EM sovereigns in World Economy News 08/03/2026 Energy price spike drives a divergence across EM exporters and importers The key global macro impact we have seen from the latest events in the Middle East is the significant spike in energy prices, with Brent crude up more than $82/bbl from below $70 in the middle of February and below $60 in late December. For EM sovereigns, the impact is somewhat divergent, with large energy importers likely to feel the pressure of higher oil and gas prices in terms of price pressures and worsening external balances. Given the experience of the gas market volatility in 2022, CEE sovereigns will understandably be in focus, with North Macedonia, Serbia, Hungary and Turkey the most exposed in CEE. They are far from outliers in the EM space, however, with large energy deficits seen in African frontier sovereigns such as Zambia and Senegal, along with Panama and El Salvador in Latin America, and Pakistan in Asia. The flip side of this dynamic, of course, is that oil exporters generally should benefit from the spike in prices. The likes of Oman, Kuwait and Qatar broadly see a net fuel surplus of over 30% of GDP, with the caveat that the security risks for these credits in the region are likely to outweigh the benefits of higher oil prices. In turn, investors will likely look to oil exporters outside the region as potential beneficiaries – in Africa, this includes Angola, Gabon and Nigeria. In Central Asia, Kazakhstan can also be seen as a beneficiary of higher oil prices. The situation is somewhat more complex for Azerbaijan, given the country borders Iran and has a history of tense relations, while maintaining good relations with Israel. The Azerbaijani Foreign Minister Jeyhun Bayramov expressed his condolences to his Iranian counterpart Abbas Aragchi over the death of the country’s supreme leader, while emphasising ‘it is impossible for any country to use the territory of Azerbaijan against neighbouring and friendly Iran’. Last year, Iranian President Masoud Pezeshkian ‘urged’ his Azerbaijani counterpart Ilham Aliyev to investigate if Israel used Azerbaijani territory to launch attacks on Iran. Regional impact varies but sentiment weakens for GCC As previously mentioned, while higher energy prices should be a net benefit to oil exporters in the Middle East, the consequent security and geopolitical risks are outweighing this for now. For the GCC country group in particular, the correlation between oil prices and sovereign risk premium has broken down, with the spike in oil prices translating to relatively wider spreads for GCC sovereigns vs Investment Grade peers. This has come amid Iran’s retaliation against both military bases and oil and refinery facilities across the GCC, along with the risk for tanker traffic that can impact export routes. Once again, this impact should not be seen as uniform across the region. Across the GCC, Bahrain is clearly the most vulnerable from a credit perspective, with a far weaker balance sheet than the rest of the region and deteriorating fundamentals, made more stark by the improvement of Oman in returning to an investment-grade rating last year. Oman itself can be viewed as the most openly neutral country diplomatically in the region, calling for immediate de-escalation, although it has still faced drone attacks. The country also would appear to be less constrained by export disruption to the Strait of Hormuz. In contrast, Qatar is heavily