Oil spiked on Monday as renewed fighting in the Middle East and rising tensions in the Strait of Hormuz made a ceasefire extension look unlikely, sending most emerging-market currencies lower.

Markets jitter after tensions in the Strait of Hormuz

Renewed fighting in the Middle East and tensions in the Strait of Hormuz pushed investors toward caution. The Mexican peso and Brazilian real edged lower, the Chilean peso fell about 0.4 percent as oil spiked after leaders signalled a ceasefire extension looked unlikely, and the Korean won and South African rand led declines among Asian and African peers because of greater exposure to higher energy and risk premiums.

Markets are parsing each development for its likely impact on oil flows, shipping routes and global trade. Emerging-market currency and equity assets briefly rose during Asian trading on optimism around artificial intelligence before giving back most gains by midday in New York when oil rebounded from session lows.

Energy shock is the main transmission channel

Energy is the clearest link between the conflict and currency moves. The International Energy Agency described damage to regional infrastructure and supply routes as the largest disruption to the global oil market in its history. A significant share of global oil and liquefied natural gas passes through the Strait of Hormuz, a choke point that serves demand in Asia and parts of Europe.

For import-dependent countries, a sudden cut in supply or higher shipping costs acts like a large, sudden tax on incomes and production. This has pressured some emerging-market exchange rates because central banks and governments face a tougher task balancing inflation and growth when energy costs surge.

The International Monetary Fund said the shock is global but asymmetric: poorer countries and those with small buffers are more exposed. The IMF warned parts of the Middle East, Africa, Asia-Pacific and Latin America could face higher food and fertiliser costs and tighter financial conditions, leaving low-income nations at particular risk of food insecurity and balance-of-payments strain.

What traders said

  • Investors reacted mainly to headlines that materially alter energy supplies and trade flows.
  • Expectations-driven trading has created a fragile setup, visible in wider intraday swings in currencies and higher implied volatility for commodity-linked assets.

Debt markets and capital flows

Currency moves are feeding through to debt markets, lifting borrowing costs for some issuers and prompting shifts in capital flows.

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The International Monetary Fund will publish its World Economic Outlook on April 14 and its Fiscal Monitor on April 15. Markets will be watching those reports for any revisions to growth and risk assessments that could affect emerging-market assets.

This article was created with AI assistance.