The renewed US-Iran attacks and closure of the Strait of Hormuz will, if sustained, prolong recessions in the Gulf economies and weigh on activity in energy-importing EMs. But continued strong demand for AI products should cushion the effects in Asia. Higher oil prices will probably keep the bias among EM central banks towards monetary tightening in the near term. Fortunately, the risk of balance of payments strains which lead to disorderly currency falls and much more aggressive interest rate hikes looks low.
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