Few choke points carry as much weight in the global economy as the Strait of Hormuz, the narrow waterway through which a large share of the world's seaborne crude and liquefied natural gas passes. When that artery is disrupted, the shock radiates outward through energy prices, exchange rates, and central-bank policy, and in 2026 it has done exactly that. The result is an acute squeeze on emerging markets, which sit at the intersection of higher energy costs and a stronger dollar.
The Price Spike
Energy markets had entered 2026 expecting a moderate environment, with oil futures pointing to an average price near the low eighties of dollars per barrel for the year. That assumption was overtaken by events. Following the closure of the Strait of Hormuz in early March 2026, exports of oil and LNG were stranded, and benchmark Brent crude surged past 120 dollars per barrel. Reported regional production fell sharply, with output from major Gulf producers dropping by millions of barrels per day in the immediate aftermath.
A price move of that magnitude is not a marginal adjustment; it is a macroeconomic event. Energy is an input into nearly everything, so a doubling of crude from its expected baseline ripples into transport, manufacturing, agriculture, and ultimately consumer prices worldwide.
The Dollar Tightens the Vise
The second blade of the squeeze is the currency channel. When geopolitical risk spikes, capital tends to flow toward perceived safety, and the US dollar typically strengthens. That is what happened as the conflict intensified. The dollar rose against emerging-market currencies upon the war's outbreak, after a steady decline from an earlier peak, and it has remained volatile, its path heavily dependent on the Federal Reserve's next moves.
Why a Strong Dollar Hurts EM
A firm dollar is particularly punishing for emerging economies for several reasons:
- Costlier imports: Oil and most commodities are priced in dollars, so a stronger greenback raises the local-currency cost of energy on top of the price spike itself.
- Heavier debt: Dollar-denominated borrowings become more expensive to service in local-currency terms, straining government and corporate balance sheets.
- Imported inflation: Weaker local currencies pass through into domestic prices, fueling the very inflation central banks are trying to contain.
Central Banks Face a Brutal Trade-Off
The combination of higher inflation and slowing growth, classic stagflationary pressure, presents emerging-market central banks with an unenviable choice. Cutting rates to support growth risks further weakening the currency and stoking inflation; holding or raising rates to defend the currency and anchor prices risks deepening the slowdown.
Analysts note that most emerging-market central banks are expected to prioritize containing inflation over protecting short-term growth, closely tracking US monetary developments and exchange-rate moves. In practice, that means many will shadow the Federal Reserve, keeping policy tight enough to limit currency depreciation even at the cost of weaker domestic demand. The IMF's upward revision of expected EM inflation for 2026 underscores how serious the pressure has become.
The Fiscal Dimension
The strain extends to public finances. Governments contending with higher import bills, slower growth, and, in some cases, the direct costs of conflict find their budgets squeezed from multiple directions. Subsidies designed to shield households from energy prices become more expensive precisely when revenues are under pressure, forcing difficult choices between protection and prudence.
Watching the Choke Point
Spillovers Beyond the Gulf
The consequences of an energy shock rarely stay contained within energy markets. Higher fuel costs feed into shipping and air-freight rates, raising the landed price of traded goods far from the source of the disruption. Food prices are especially sensitive, since modern agriculture depends on energy-intensive fertilizers and mechanized transport, and food weighs heavily in the consumption baskets of poorer economies. The combination means that a crude-price spike originating in one waterway can show up months later as higher grocery bills on another continent, broadening the political and social stakes of the shock well beyond oil-importing balance sheets.
The ultimate trajectory hinges on whether the disruption proves temporary or persistent. A reopening of the strait and a normalization of flows would allow prices to ease and the dollar to soften, relieving much of the pressure on emerging markets. A prolonged disruption, by contrast, would entrench high energy costs and keep the currency vise tight, testing the resilience of vulnerable economies. For now, the Strait of Hormuz remains the single variable that much of the emerging world is watching most closely, a reminder that in an interconnected economy, geography still matters enormously.