Sue Lee, Head of Markets for the Asia South cluster at Citi. Photo courtesy of Citi |
How could current geopolitical tensions affect the global economic outlook?
Geopolitical tensions primarily affect the global economy through energy markets. The Strait of Hormuz accounts for about 20% of global seaborne oil trade, with roughly 15 million barrels of crude oil per day and more than 5 million barrels of petroleum products passing through it.
If this flow were disrupted, oil supply could decline significantly, potentially by 11-16 million barrels per day. Citi estimates that Brent crude prices could rise toward $120 per barrel, while European natural gas prices could increase to around EUR100 per MWh.
Higher energy prices would also have implications for inflation and monetary policy. Citi estimates that every 10% increase in oil prices could add approximately 0.2 percentage points to global inflation, which may delay interest rate cuts by major central banks.
How could rising energy prices affect Vietnam’s economy?
Vietnam is likely to be affected mainly through higher energy costs and increased production expenses.
The economy remains relatively energy-intensive compared with regional peers, meaning global oil price fluctuations are transmitted relatively quickly into domestic costs. Vietnam has also become a net energy importer, with its oil trade deficit reaching about $12 billion in 2024. Around 85% of its crude oil imports come from Kuwait.
Higher fuel costs can increase input prices across multiple sectors, including mining, chemicals, fertilizers, plastics, and construction materials. In some industries, fuel accounts for a significant share of intermediate inputs, making them particularly sensitive to price changes.
As a result, inflation could rise in the near term. Citi expects Vietnam’s inflation, which stood at around 3.4% year-on-year in February, to approach 4% in the coming months if global energy prices remain elevated.
How could rising energy prices affect the Vietnamese dong?
Higher energy prices could put pressure on Vietnam’s exchange rate through their impact on the trade balance and global financial conditions.
As oil prices increase, the country’s energy import bill tends to grow faster than exports, narrowing the current account surplus and creating depreciation pressure on the currency.
Citi also expects the US Dollar Index (DXY) to strengthen over the next 6-12 months due to global uncertainty and demand for safe-haven assets. A stronger U.S. dollar typically places additional pressure on emerging market currencies, including the Vietnamese dong.
However, Citi expects any depreciation of the dong in 2026 to remain moderate, likely in the low single-digit range. Stable capital inflows and solid macroeconomic fundamentals are expected to help limit volatility.
In addition, equity outflows observed in 2025 may stabilize if Vietnam moves closer to inclusion in global emerging market indices. This could help support foreign capital inflows.
What are Citi’s priorities in Vietnam?
Vietnam remains a key market for Citi’s Markets business and is among the faster-growing markets in the region. The bank aims to deepen client engagement by supporting demand across products such as foreign exchange, interest rates, and liquidity management.
Client demand for hedging solutions has increased as companies seek to manage currency and interest rate risks in a more volatile global environment. Citi continues to leverage its global network and risk management capabilities to support these needs.
The bank is also seeking to expand its market share as clients increasingly utilize its international network to access global markets. Connecting Vietnam with global capital flows and providing international insights remains a central part of Citi’s strategy in the country.
Comments are closed.