Goldman Sachs: Why hasn't the oil price shock derailed emerging markets? Goldman Sachs finds Asian importers most sensitive

Why has this oil price shock been milder than expected?

Oil prices surged after the Iran conflict broke out, but Goldman Sachs' high-frequency activity indicators show that emerging-market growth has remained broadly stable and above trend. Inflation has risen, but by less than the bank initially expected.
Governments have slowed the pass-through to retail prices through subsidies, taxes and fuel price controls, particularly in emerging Asian markets. Meanwhile, AI investment has offset some of the pressure on growth, while weak food inflation and stronger emerging-market currencies have also eased price pressures.
The shock itself has also been milder: since the conflict began, real oil prices have averaged about 25% above their 50-year average, or about 50% above it after refining margins are included. In several previous crises, real oil prices exceeded twice their long-term average. The amount of fossil fuel required per unit of output is also declining.

Goldman Sachs estimates that a 10% rise in oil prices lowers the level of GDP in oil-importing economies by an average of 0.2 to 0.3 percentage points over one to two years. If the price increase is driven by a supply shock, the loss widens to 0.5 to 0.6 percentage points.
The difference lies in the context of the price increase: demand-driven rises in oil prices often accompany stronger global economic activity, which can partly offset higher import costs. Price increases caused by reduced supply lack this support.
The bank estimates that a 10% rise in oil prices raises the level of the consumer price index (CPI) by an average of 0.3 percentage points within one year, with estimates across economies ranging from 0.1 to 0.7 percentage points.

According to Goldman Sachs' estimates combining historical data with countries' net oil export positions, the negative effects on GDP and current accounts are most concentrated in emerging Asian markets, and some economies also show larger inflation responses. Gulf oil producers and Kazakhstan benefit more noticeably.
The current account response is closely related to net oil exports as a share of GDP, with most of the impact appearing within one to two quarters. Higher oil prices quickly change import bills or export revenues, so this indicator is less sensitive than GDP to the source of the shock.
Fuel's weight in the consumption basket alone is not enough to determine inflation pass-through: differences in taxes, subsidies and price controls mean that even economies with similar fuel weights may experience different degrees of pass-through from international oil prices to domestic prices.

GDP estimates are particularly sensitive to the sample period, modelling method and type of shock. Goldman Sachs therefore combines its econometric results with calibration results based on countries' net fuel export positions. The calibration results account for 70% of the GDP estimates, while the two approaches receive equal weight in the current account estimates.
The current shock reflects reduced Gulf supply, but global growth was accelerating both before and after the shock. Goldman Sachs notes that a common method of distinguishing the source of a shock by the strength of global growth could therefore misclassify it as a demand shock.
The economy's moderate performance so far does not eliminate future pressure: Goldman Sachs believes that further oil price increases could still produce a significant economic shock.