With Islamist militants claiming large parts of Iraq at alarming speed, the price of Brent crude has risen above $114 for the first in nine months. Currency experts now warn that there will be winners and losers in the foreign exchange markets on the back this oil spike.
Neil Mellor, a senior currency strategist at BNY Mellon, believes there will be a divergence between certain currencies in the coming weeks if investors remain nervous over Iraq. This divide will be based on countries' ability to pay their debts and their dependency on energy imports, he said.
"Large net importers such as China, Japan and South Korea would face a not inconsiderable hit to growth from a sustained rise in (oil) prices," he said in a research note on Thursday. Their currencies could therefore come under pressure.
He also points to the so-called "fragile five" (Brazil, India, Indonesia, South Africa and Turkey) who have large current account deficits which could affect their ability to pay debts. While these countries' currencies could also be hit, the Brazilian real should emerge unscathed, due to the country being a net oil exporter.
"India, a country that imports 75 percent of its energy needs and is currently waging an ongoing fight with inflation, therefore appears particularly vulnerable; but we note that it is the Indonesian rupiah that has come under the most pressure to date, despite the country being only a marginal net importer," he said.