How Emerging Economies would be affected by ttge second Phase of the US/Israel and Iran war

Oil prices have risen around 45-40% since the start of the war . Oil which was hovering around the 65-70 $ a barrel before has now surged and to around 105-110 $ . Fertilizer prices too have surged by more than 40%, as the Gulf accounts for roughly one-third of global seaborne fertilizer trade.

Additionally, the Gulf region handles more than 20% of the global LNG market and a significant share (approximately 23–30%) of the world’s chemicals and plastics trade.

The first phase of the war did lead to major disruptions as Iran blockaded the strait of Hormuz. However a lot of the critical infrastructure ( both in Iran and the remaining Gulf countries ) was spared.
As the ceasefire hangs precariously by a very thin thread, if the conflict were to resume with similar to higher intensity, it would lead to a very negative scenario for the whole world. It would severely impact emerging economies.

From an environmental standpoint, most of the emerging economies have shown a clear trend towards switching to higher than usual coal use to offset the rising cost of gas and oil . If the conflict widens and we witness a scenario where we see the destruction of Middle East’s industrial and energy facilities, whose potential reconstruction would take years, this trend could intensify significantly.

Based on the UN, there would also be a significant rise in hunger and poverty.

In April 2026, the IMF, World Bank, and IEA issued a joint statement describing the current shock caused by the war as substantial, global , and highly asymmetric, with a far reaching effects on low-income importers, rising food inflation, job losses, and downgraded growth forecasts for emerging economies.

The manufacturing sector is already reeling under the effect of the war . Processing and supply chains have been impacted due to the disruption of petrochemical and naphta supplies. This has already led to partial shutdowns in some Asian countries. Small and medium-sized businesses, which account for 60–70% of industrial employment, are bearing the brunt due to raw-material shortages, especially in Vietnam and Thailand.

Even with some reshoring and friendshoring toward Latin America and the fragmentation of global supply chains into regional blocs,
the world would still face strong inflationary pressure on these products.

In adverse scenarios, projections indicate significant reductions in downstream Asian production, potentially in the 20-50% range in the first six months.
Even with some reshoring and allyshoring towards Latin America and the fragmentation of global supply chains into regional blocs, the world would still face strong inflationary pressure on these products. This is the case even when we have underestimated the full risks of a long protracted war in the Middle East.

The metals industry is another one that would also be severely affected, as its hit with a double whammy : expensive energy plus petroleum coke and petrochemicals shortage . This could drive steel and aluminum costs up by as much as 70%, with global production falling 8-15% (worst case estimate ).