23rd July 2026

Emerging markets: no longer afraid of oil price

High oil prices no longer spell disaster for emerging markets. Their impact is counterbalanced by booming tech industries, stronger fundamentals and lessened reliance on the dollar.

Financial markets reacted to the recent surge in oil prices exactly as they have for the past 50 years – at least initially. Equities fell, bond yields rose, the currencies of energy importers weakened, and emerging market assets sold off.

But the traditional oil shock scenario proved short-lived. Emerging market (EM) local currency debt fell by nearly 6% – more than double the drop in developed markets (DM) – but rebounded by 4.2%, ending broadly in line with DM. EM hard currency debt proved more resilient, with a smaller initial drop and a stronger rebound, ultimately outperforming DM by around 2%. This performance is notable given EM’s usual sensitivity to rising risk aversion.

Historically, higher oil prices worsen the terms of trade for importing countries, push inflation higher, erode households’ real incomes and ultimately weigh on economic growth. Central banks in turn grow more hawkish, risk assets suffer and emerging markets would usually be among the first casualties.

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