Energy prices are back in the spotlight, and with geopolitical risk once again pushing oil and gas costs higher, some investors are asking quite an interesting question: who feels the pain most – the UK or emerging markets?
The short answer is that emerging markets, taken as a whole, are often more exposed. Energy accounts for a larger share of household spending and industrial costs across much of the developing world, meaning price rises feed more quickly into inflation. For energy‑importing countries, higher prices can weaken currencies, widen trade deficits and force central banks to tighten policy just as growth slows.
Unlike the UK, many emerging economies also lack the fiscal firepower to cushion households and businesses with generous subsidies. When energy prices spike, the shock tends to land faster and harder.
But this is only half the story. Emerging markets are not a single trade. A number of large emerging market economies are major energy producers. For them, higher oil and gas prices can actually improve trade balances, lift government revenues and support currencies, meaning that rising energy costs can be a net positive rather than a drag.
Despite being a developed economy, the UK remains exposed to global gas prices, with electricity costs among the highest in the developed world. Energy price spikes feed directly into inflation, squeezing households and complicating the Bank of England’s path to lower interest rates.
For investors, the takeaway is clear: rising energy prices are rarely a simple risk‑off story. The real divide is not between emerging markets and the UK, but between energy winners and energy losers – wherever they happen to sit on the map.
Capital at risk. All views expressed are those of the author and should not be considered a recommendation or solicitation to buy or sell any products or securities.