Oil price moves: A big EM differentiator

Oil prices are on the rise this year, with the price of Crude Brent increasing significantly over the past few months. However, it is difficult to disentangle how much of this is due to the increased demand of synchronized global growth upswing, limits on supply, such as OPEC stringently sticking to production quotas and the recent decline in US shale rig count, or heightened geopolitical uncertainty in the Middle East.

Macroeconomic impact

The rise in oil prices redistributes the global income from consumers to producers, which can lead to a varied macroeconomic effect on the emerging market (EM) universe, home to some of the world’s largest net commodity exporters and importers.

The oil price plunge in H2 2014 drove a divide in the EM universe, where commodity importers (notably in Asia and parts of EEMEA) had the upper hand over large commodity exporters (from Latin America, the Middle East and Russia). However, along with oil prices, the roles between the importers and exporters have also reversed, driving greater divergence across EM economic performance.

Driving EM divergence

This report revisits four essential factors to look at in EM differentiation, namely: asymmetries, economic starting positions, non-linear effects, and higher policy interest rates exposing EM credit risks. In the world of significantly higher oil prices in 2018, the EM universe would be classified as follows:

Strategy implications

Sustained higher oil prices would mean a significant differentiation in EM foreign exchange, with upside risks to EM rates. The varying impact on trade positions could create more challenges to net importers of oil while benefiting net exporters. Other risks to be considered are potentially higher rates, the negative impact to growth, and implications for EM credit.

Read the full report here for detailed comparative study on what makes EM divergence grow.


  • Rob Subbaraman

    Head of Global Macro Research and Co-head of Global Markets Research

  • Craig Chan

    Global Head of FX Strategy

  • Albert Leung

    Asia Rates Strategist

  • Henrik Gullberg

    Senior EM Strategist

  • Vivek Rajpal

    Asia Rates Strategist

  • Benito Berber

    Senior Strategist, Americas

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