The ripple effects of the Iran war come at an unfortunate moment for developing nations. Before the US and Israel began attacks on Tehran in late February, optimism was growing about the emerging world’s resilience, albeit with a few exceptions. Despite rising American tariffs, and the scars of the Covid-19 pandemic and Ukraine conflict, economic growth and stock markets across the broad group of nations had been surprisingly sturdy. Timely reforms and prudent fiscal and monetary policies had helped. The ongoing closure of the Strait of Hormuz now threatens that hard-fought progress.
The crisis in the Middle East is a triple whammy for poorer nations. First, it is harder for the net energy importers among them to compete on global markets for tightening supplies of oil and gas. Many also lack renewable alternatives. From Ethiopia to Tuvalu, fuel shortages are spreading. Next, disruption to food supplies and fertiliser — of which a third of the world’s seaborne trade passes through the strait — increases the risk of malnourishment in countries where agricultural yields have already been hit by climate shocks. If the conflict persists until June, 45mn more people could be pushed into acute hunger, the UN estimates.
Lastly, foreign workers in the Gulf send home over $100bn in earnings every year. Many expats are returning home as it is unclear when economic activity in the region will revert to normal. South Asian nations, Egypt and the Philippines are particularly exposed to weaker remittance flows. Across all three shocks, Bangladesh looks uniquely vulnerable.