The five-week conflict involving the U.S., Israel, and Iran is fracturing emerging market economies. Turkish manufacturing activity contracted at its fastest pace in five months in March. The downturn is a direct casualty of the ongoing Strait of Hormuz closure. That chokepoint shutdown has temporarily removed roughly 20% of the world’s oil supply from the global market.
The Istanbul Chamber of Industry and S&P Global published the latest Purchasing Managers’ Index data on Wednesday. The numbers show a severe slump. Regional supply chains are fractured. Customer demand is falling rapidly as input costs rise.
Global energy prices are driving the collapse. Brent crude futures breached $112 a barrel recently. That is a surge that previously saw the Sensex plunge 1,700 points, and it is now tracking for a record monthly percentage gain. Emerging markets like Turkey are absorbing the brunt of this energy shock, according to a detailed report.
The Broader Impact
The shockwaves extend far beyond Istanbul. Hungary saw its manufacturing PMI fall to 50.4 in March due to the fallout from the Iran war. China reported its factory activity expanded to 50.4, but analysts warn the prolonged Middle East conflict poses a severe threat to sustained growth there.
Governments are attempting to intervene. Turkey, Egypt, and Pakistan are currently trying to act as mediators between the U.S. and Iran. Egyptian President El-Sisi formally appealed to the U.S. administration to end the conflict to protect developing nations from further economic damage.