Emerging Market Economies Face Bearish Pressure as Costs Surge 3x

Emerging market economies across South Asia, Southeast Asia and Africa are confronting an increasingly difficult operating environment as the Iran war creates cascading disruptions across global supply chains. For nations such as India, the conflict is not a distant geopolitical event but a direct threat to trade competitiveness, input costs and consumer price stability.

The problems are multifaceted. Export consignments are delayed or stranded, raw material costs are climbing sharply and shipping surcharges are eroding margins across industries. These pressures arrive at a time when weather forecasters are warning of a likely El Nino event later in 2026, raising the prospect of drought conditions that could further strain food supply chains.

Shipping War Surcharge Triples Freight Costs

The most immediate impact of the Iran war on emerging market economies is being felt in shipping and logistics. Exporters and importers are now subject to war surcharges imposed by global shipping liners, and the cost escalation has been severe.

India-Gulf container freight rates have jumped from $800-1,200 per container to $3,200, representing a near-threefold increase. The surcharges apply not only to new bookings but also to cargoes already on the high seas, catching traders off guard with retroactive cost increases.

Stranded Consignments at Persian Gulf Ports

Several Indian agri commodity exporters have reported that consignments that have already reached Persian Gulf ports are now stuck. Receivers are being asked to pay the shipping war surcharge before cargo can be released, creating disputes over who bears the additional cost.

The financial exposure is significant. Industry sources indicate that losses could run into millions of dollars for exporters who shipped on pre-war pricing terms and are now facing surcharges they cannot pass on to buyers. Perishable export consignments are particularly vulnerable, with goods stuck at airports and ports facing spoilage risk.

Iran War Impact on Industrial Input Costs

Beyond logistics, the Iran war impact is reverberating through industrial supply chains as crude oil prices remain elevated. Petrochemical feedstocks including naphtha, ethylene and butadiene are becoming more expensive, pushing up production costs across manufacturing sectors.

The All India Rubber Industries Association has flagged rising raw material costs as a major concern. Synthetic rubber, which is derived from petroleum products, has seen sharp price increases. This, in turn, is pulling up prices of natural rubber, as buyers switch between the two based on relative pricing.

India's domestic rubber market is closely linked to global price movements. With both synthetic and natural rubber prices surging, manufacturers of tyres, industrial goods and consumer products face margin compression.

Packaging Costs Add to the Burden

The cost escalation extends to packaging materials. Polypropylene bag prices have more than doubled within a single week, rising from Rs 11 to Rs 23 per bag. This translates to an additional Rs 250 per tonne in packaging costs for commodity exporters and processors.

For agri commodity exporters operating on thin margins, this increase is substantial. Combined with the tripling of freight rates, the total cost of moving goods from Indian farms and factories to overseas markets has risen sharply, undermining export competitiveness.

El Nino Food Inflation Threatens a Second Shock

The economic difficulties created by the Iran war are compounded by the likelihood of an El Nino weather event later in 2026. Meteorological agencies have indicated that El Nino conditions could develop in the second half of the year, potentially bringing drought and extended dry periods to key agricultural regions across South Asia, Southeast Asia and parts of Africa.

For emerging market economies that are already managing war-driven cost inflation, El Nino food inflation presents a second shock. Reduced crop output would tighten food supply, push up domestic prices and increase dependence on imports at a time when shipping costs are elevated.

India, which is heavily dependent on monsoon rainfall for its kharif crop, would be particularly vulnerable. A weak monsoon could reduce output of rice, pulses, oilseeds and coarse cereals, compounding the inflationary pressures already building from supply chain disruptions.

India Weighs Policy Interventions to Contain Inflation

Facing a double challenge from the Iran war and the El Nino food inflation outlook, the Indian government is exploring multiple policy options to manage consumer prices. The pulses industry, in particular, expects the government to extend duty-free import facilities for black matpe and pigeon pea to ensure adequate supply.

At the same time, the government is expected to maintain the existing 10% import duty on lentils and the 30% duty on yellow peas. This approach reflects an attempt to balance consumer affordability with protection for domestic growers, who would face price pressure from unrestricted imports.

Broader Policy Dilemma for Developing Nations

India is not alone in facing these trade-offs. Emerging market economies across the developing world are grappling with the same set of pressures: war-driven supply chain costs, currency depreciation against the US dollar, elevated commodity import bills and the prospect of weather-related food supply shocks.

Central banks in several emerging economies are being forced to weigh the risk of imported inflation against the need to support growth. Fiscal authorities, meanwhile, face difficult choices about subsidies, tariff adjustments and strategic reserve management.

Outlook: A Prolonged Period of Elevated Risk

The convergence of the Iran war and a potential El Nino event creates an unusually challenging environment for emerging market economies. The war has disrupted trade routes, inflated logistics costs and pushed up raw material prices. El Nino threatens to reduce agricultural output and trigger food price spikes.

For countries like India, which sit at the intersection of both risks, the policy response will need to be agile and multi-pronged. Trade facilitation measures, tariff adjustments, strategic procurement and inflation-targeting interventions will all be necessary to navigate the months ahead.

The key variable remains the duration of the Iran conflict. A swift resolution would ease shipping surcharges and stabilise energy prices. A prolonged war, combined with El Nino, would push emerging market economies into a sustained period of elevated input costs and food inflation that could test both fiscal capacity and political stability.