Disruptions in the Strait of Hormuz have been sending shockwaves through the global energy system, according to UNCTAD’s report “Strait of Hormuz Disruptions: The burden of oil price shocks on vulnerable economies”.
The report highlights that vulnerable economies are on the front line: of 75 economies classified as least developed countries (LDCs) and small island developing states (SIDS), 65 depend on imported oil.
As explained by UN Trade and Development (UNCTAD) for these countries, rising energy prices translate directly into higher costs and difficult trade-offs between covering fuel bills and investing in essential public services, with implications that could affect nearly 1 billion people.
When the Strait of Hormuz is strangled, the world’s poorest and most vulnerable cannot breathe.
…said António Guterres, Secretary-General of the United Nations.
Rising oil prices have wide-ranging economic consequences, particularly for vulnerable economies heavily dependent on fuel imports.
Higher prices increase freight and fuel costs, which in turn raise the overall cost of goods. At the same time, broader inflationary pressures can take hold, affecting not only importing countries but also some net oil exporters.
These dynamics place significant fiscal pressure on net-importing vulnerable economies, forcing difficult trade-offs between protecting households from rising prices and maintaining essential public services and long-term investment, including commitments to sustainable development.
Economies facing increased oil import bills may also experience widening current account deficits and pressure on exchange rates, which can lead to higher interest rates, tighter credit conditions, and slower economic growth, particularly where fiscal space is already limited.
The scale of the impact is substantial: a 50% increase in oil prices, assuming 2024 consumption levels remain unchanged, could raise the cost of importing oil by approximately $20 billion annually. In response to such shocks, some economies may also need to secure alternative energy supplies, UNCTAD highlights.