Global credit rating agency, Fitch, warned on Tuesday that merging market economies could face heightened economic and financial pressures as a result of the ongoing conflict involving Iran.

Fitch issued the warning in its report titled “Iran conflict raises new credit risks for emerging market sovereigns”.

The report highlighted that sustained disruptions to energy supplies from the Gulf could have serious consequences for countries dependent on imports.

The report also warned that remittances, exchange rates, and investor sentiment in affected emerging markets could come under pressure.

“More sustained disruption to energy flows than currently assumed in our baseline scenario could significantly damage global investor sentiment,” Fitch said, noting that such shocks could amplify fiscal pressures and balance-of-payment challenges for vulnerable governments.

The agency emphasised that sovereign credit profiles of emerging markets might be affected if energy costs rose sharply or capital flows became volatile.

Such developments could potentially increase borrowing costs and strain public finances.

Fitch’s warning underscores the interconnected nature of geopolitical risks and emerging market stability.

It highlights the sensitivity of these economies to external shocks in critical sectors such as energy.

“We expect this would result in a stronger US dollar and weaken the market for debt issuance, particularly for highly speculative-grade issuers.

‘’Higher energy prices could put upward pressure on inflation, affecting monetary policy decisions globally,” the report said.

Fitch said oil and gas imports were the most direct channel for contagion from the conflict, given its effect on global energy prices.

For larger economies, such as India, net fossil fuel imports are equivalent to 3 per cent or more of GDP.

“The Iran conflict could raise additional challenges for some emerging market sovereigns, through such channels as energy imports, remittances, fiscal subsidies, exchange rates, and access to international finance,” Fitch Ratings said.