EM Weekly
March 14, 2026

As the second week of the U.S./Israeli war against Iran progressed, market attention has been increasingly focused on the scenarios and potential timeframe for reopening the strategic Strait of Hormuz. While geopolitical experts have been shifting their views toward “harder to re-open for longer”, the market does not appear to have embraced that narrative yet amid mixed messaging coming out of the Trump administration on efforts to at least partially reopen traffic through the strait.

Iran’s new supreme leader, Mojtaba Khamenei, who has been “wounded and likely disfigured” according to U.S. Secretary of War Hegseth, signaled that Tehran’s goal is to keep the strait closed for commercial traffic and will look to open new fronts in the war if the U.S./Israeli attacks persist. The Islamic Revolutionary Guard Corps warned countries to “get ready for oil to be $200 a barrel” as it struck energy vessels and infrastructure in the Persian Gulf.

The high uncertainty continued to impede the willingness and ability of shipping to resume transiting the Strait of Hormuz. It remains unclear how plans shared by the Trump administration for the U.S. navy to escort commercial vessels would work in practice and how soon they could be implemented, offering little relief to energy markets that remain highly volatile.

Although off-ramps for de-escalation have not appeared yet two full weeks into the conflict, mixed messages and investors’ desire to believe in a quick resolution amid a “buy the dip mentality” have kept market reactions relatively benign thus far. As such, this week ended in a calmer tone compared to the previous two. Below the surface, however, tensions remain, and parts of the currency market appear to be flashing yellow as the Yen slid to its weakest level since July 2024.

Amid dueling signals on the likely trajectory and duration of the conflict and mounting concerns about material global oil supply disruptions, oil prices were highly volatile, with Brent spot initially touching $120 per barrel before retreating to around $80 mid-week, to close at around $100. Volatility persisted despite the International Energy Agency announcing it would release an unprecedented 400 million barrels of oil from its reserves.

The U.S. dollar, having regained some of its traditional “safe haven” appeal during periods of geopolitical stress, broke back into 100 territory on the DXY index for the first time since November 2025. The next level markets will be watching is 102, last reached in May of last year. The U.S. Treasury curve edged higher relative to last week, led by the short end (2-Year +17bps to around 3.73%, 10-Year +14bps to around 4.28%, and 30-Year +15bps to around 4.91%) as weak U.S. economic data failed to provide relief and to support market bets that the Fed might have space to deliver rate cuts later in the year.

Global stock markets finished weaker despite an attempt at a modest late-week relief rally. Earlier weakness was driven by oil supply and inflation fears that were amplified by other underlying global economic fragilities such as signs of distress in the U.S. private credit market amid what appeared to be increasing redemption requests. Gold and silver spot prices were stable around their recent reference levels ($5000 and $85 per ounce, respectively), while Bitcoin rallied to the low $70,000s.

U.S. macro data was weak or revised weaker across the board: consumer sentiment measured by the preliminary March University of Michigan sentiment survey, fell to a three-month low on concerns about the impact on gasoline prices and inflation from the war in the Middle East. The second reading of 4Q GDP indicated that economic growth at the end of 2025 was significantly slower (0.7% annualized rate vs 1.4%) than initially estimated. The January Core PCE index, the Federal Reserve’s preferred price gauge, was in line with expectations (0.4% month-over-month and 3.1% year-over-year), as was February headline CPI (0.3% month-over-month and 2.4% year-over-year), but the market value of both readings is limited as they reflect pre-Iran conflict dynamics.

In China, February CPI and PPI data surprised to the upside, with headline inflation accelerating to 1.3% year-over-year from 0.2% in January and 0.9% expected by consensus. However, the data coincided with the Lunar New Year, signaling it might be too early to call a rebound in China’s lackluster consumption dynamics. Meanwhile, robust February trade data (export YTD +21.8% year-over-year vs. 7.2% consensus; import YTD +19.8% year-over-year vs. 7.0% consensus) point to a still strong external growth engine for now.

Across emerging markets, the central bank of Türkiye interrupted its rate cutting cycle citing elevated uncertainty on the inflation outlook driven by the ongoing oil price shock and signaled a “wait-and-see” approach going forward, which we expect to be the dominant tone by EM central banks as long as uncertainty driven by the conflict in the Middle East remains unresolved. Colombia’s parliamentary elections and presidential primaries last Sunday produced a better-defined presidential field with a path for a market-friendly candidate to win the likely presidential run-off in June and a fragmented but center-dominated Congress, which we see as constructive developments relative to expectations.