Developing Nations Hardest Hit as Oil Tops $90 and Dollar Strengthens

The world’s developing nations are facing a double blow from the Iran conflict: surging oil prices that are raising their energy import costs and a strengthening US dollar that is making those imports even more expensive in local currency terms. With Brent crude surging more than 25% in a week and the dollar gaining against most emerging market currencies, the economic impact on developing economies is disproportionately severe.
For oil-importing developing countries — which include most of sub-Saharan Africa, South and Southeast Asia, and large parts of Latin America — the combination of higher oil prices and a stronger dollar is devastating. These countries pay for oil in dollars, meaning that a simultaneous rise in the oil price and the dollar’s value can double the local currency cost impact. Governments that were already managing tight fiscal positions are now facing dramatically higher import bills.
The inflationary consequences for developing economies are typically more severe than in wealthy nations, because food and energy account for a much larger share of household spending in poorer countries. When oil prices rise sharply, the cost of transportation — which determines the price of everything that needs to be moved, including food — rises too. For families spending 60–70% of their income on basics, a fuel-driven food price rise is an acute crisis, not just an economic inconvenience.
The Gulf energy emergency is creating the price pressure. Kuwait has cut production at storage-full fields, Saudi Arabia and UAE face the same situation within 20 days, and Qatar’s LNG exports are disrupted following drone-strike damage. Qatar’s energy minister has warned that continued conflict could push all Gulf exporters to halt production and drive oil to $150 a barrel — a price level that would be catastrophic for developing economy import budgets.
International institutions including the International Monetary Fund and World Bank are already warning about the potential for a developing world debt crisis if oil prices remain elevated. Countries that borrowed heavily during the low-interest-rate era and are now facing both higher oil import bills and higher dollar-denominated debt servicing costs are in a particularly precarious position. The Iran conflict has, for the world’s poorest nations, created a crisis within a crisis.