Escalating geopolitical tensions involving Iran have sparked a sharp sell-off in emerging markets, with the EMXC index dropping 6.3% in two days. Oil prices surged to $98.70 per barrel on CL=F as investors flee risk, while the VIX spiked to 34.8, signaling heightened market volatility.
- EMXC index declined 6.3% over two days, its steepest drop since 2022
- CL=F crude rose to $98.70 per barrel, up 7.1% in three days
- VIX climbed to 34.8, signaling heightened market volatility
- Defense stocks LMT and RTX gained 4.2% and 5.6% respectively
- EM bond ETFs dropped 14%, equity ETFs fell 9% in one week
- Global EM exposure reduced by 12.4% as of March 3, 2026
A rapid deterioration in regional security following heightened rhetoric and military movements linked to Iran has triggered a broad-based retreat from emerging market assets. The EMXC index fell 6.3% over the past 48 hours, marking its steepest two-day decline since 2022, as capital fled from equities and local debt markets across Turkey, India, and Brazil. The sell-off reflects growing concerns over supply chain disruptions and rising insurance premiums for maritime shipping through the Strait of Hormuz. Oil markets reacted sharply, with Brent crude futures climbing to $98.70 per barrel on CL=F—a 7.1% increase in the past 72 hours—driven by fears of potential supply chokepoints in the Middle East. Defense stocks in the U.S. and Europe also saw momentum, with Lockheed Martin (LMT) and Raytheon Technologies (RTX) posting gains of 4.2% and 5.6%, respectively, as military spending expectations reprice upward. The VIX index, a key gauge of market fear, rose to 34.8, its highest level since late 2023, indicating a significant shift in investor sentiment. This spike coincides with a 14% drop in emerging market bond ETFs and a 9% decline in regional equity ETFs like EEM and EMB. The impact is not limited to equities; credit default swaps on select EM sovereigns widened by 25–35 basis points, signaling increased default risk perception. Geopolitical risk is now the dominant factor influencing asset allocation, with global portfolio managers reducing EM exposure by 12.4% in the past week, according to internal data. The rally in safe-haven assets—U.S. Treasuries, gold, and Japanese yen—further underscores the re-pricing of risk across financial markets.