Page 68 - CMA Journal (Jan-Feb 2026)

O TH ER F EATURES

Impact on Developing Economies The impact goes beyond energy. Global trade
fragmentation, including rerouted supply chains and
When analysts talk about oil price uncertainty and
rising tariffs and policy uncertainty, feeds into the WUI
inflation, it is easy to focus on higher prices. But the
and makes future growth more unpredictable.
impact on developing economies is far more complex
and deeper than standard models suggest. Policy Measures
1) Currency Stress - Emerging markets often run In a world where uncertainty and volatility are persistent,
current account deficits financed through foreign policy responses must be flexible, unconventional and
capital flows. Sharp swings in oil prices and forward looking.
uncertainty about future prices can trigger sudden
• Inflation anchors need a broader view. Monetary
capital outflows and currency depreciation. Recent
policy must consider uncertainty premiums in
market reactions show emerging currencies
commodity prices, not just baseline inflation
weakening as investors move toward the relative
numbers.
safety of the US dollar, increasing the cost of imports
and foreign currency debt servicing. • Strategic reserves and diversification. Developing
countries can reduce energy price shocks by building
2) Food and Fuel - Developing countries rarely import
fuel and food reserves and diversifying import
only oil. They also rely on fertilizer, shipping services,
sources.
and refined fuels. When oil price uncertainty spikes,
the secondary effect is often simultaneous rises in • Safety nets and financial innovation. Social
food and fuel prices that hit low-income households protection systems linked to uncertainty or
the hardest. Higher energy costs raise transport and commodity price changes can protect vulnerable
logistics expenses, which then push up food prices, consumers before crises worsen.
creating additional pressure that oil price indices do
not fully reflect. A Strategic Way Forward
3) Social Fragility - Inflation alone is an economic For developing countries, this volatility presents not just
issue. When combined with uncertainty, it becomes challenges, but opportunities to rethink traditional policy
a social risk. High uncertainty undermines frameworks and build lasting resilience. Below are
confidence in markets, governments, and future strategic pathways that blend immediate risk mitigation
incomes. This can lead to reduced savings, lower with long term transformation:
investment, and changes in household spending 1) Energy Security: Developing countries have long
behavior, especially among poor and middle-class relied heavily on imported fossil fuels. The recent
households with limited financial buffers. These conflict induced oil market swings underscore the
changes, such as cutting essential spending or importance of energy diversification:
removing children from school, can create long term
2) Renewable Energy: Investing in wind, solar, and
social consequences not captured in conventional
innovative energy technologies reduces
economic models.
dependence on imported oil and shields economies
4) Export Risk - Oil price shocks do not only affect from global price shocks. Renewable deployment
importing countries. Even resource rich developing also attracts green finance and job creation.
economies face risks. When uncertainty rises and
3) Strategic Petroleum Reserves: Building or
credit tightens, non-oil export sectors such as textiles
expanding reserves can buffer short term supply
and agriculture suffer from reduced financing and
shocks and reduce abrupt inflation spikes tied to oil
weaker demand. This slows growth and increases
volatility.
unemployment pressure.
4) Regional Energy Cooperation: Joint infrastructure
Geopolitics and Volatility and shared electricity grids between neighboring
A key feature of 2026 is that conflict has become a economies can reduce vulnerability to external
persistent driver of volatility. The ongoing Strait of supply chain disruptions.
Hormuz crisis, which has almost closed a route carrying Targeted Inflation ManagementTools
20 percent of global oil, continues to affect energy and
shipping markets. The rerouting of trade around Africa’s As global uncertainty pushes up energy prices,
Cape of Good Hope has added weeks to shipping times, developing countries should adopt inflation anchoring
increased logistics costs, and raised prices of important strategies that go beyond typical monetary policy tools:
commodities.

66 ICMA’s Chartered Management Accountant, Jan-Feb 2026