Strait of Hormuz Disruptions: The burden of oil price shocks on vulnerable economies

Disruptions in the Strait of Hormuz are sending shockwaves through the global energy system.

Vulnerable economies are on the front line: of 75 economies – least developed countries (LDCs) and small island developing states (SIDS) – 65 depend on imported oil.

For these countries, rising energy prices will translate into higher costs and difficult trade-offs between covering fuel bills and investing in essential public services. This will affect nearly 1 billion lives.

When the Strait of Hormuz is strangled, the world’s poorest and most vulnerable cannot breathe.

António Guterres
Secretary-General of the United Nations

Without relief, these shocks will further entrench structural vulnerabilities.

Key considerations

• Increased costs: Higher oil prices raise freight and fuel costs, increasing the overall cost of goods.
• Broader inflation: Many vulnerable economies rely heavily on fuel imports, where oil price increases quickly raise the cost of living. Broader inflationary pressures may also affect net oil exporters.
• Fiscal pressure: Oil price shocks increase fiscal pressure in net-importing vulnerable economies, forcing trade-offs between shielding households from price spikes and sustaining essential services and long-term investment, including for sustainable development.
• Economic slowdown: Increased oil import bills can widen current account deficits and weaken exchange rates, triggering higher interest rates, tighter credit conditions, and slower economic growth, especially in economies with limited fiscal space.

Source: UNCTAD

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