Fixed Income Insights

Global credit: From energy price shocks to supply risk

The Middle East conflict is increasingly a credit event, not because of direct regional exposure alone, but because of the way disruption travels through global supply chains to issuer fundamentals.

Looking beyond energy prices: Second round effects and other shortages can materially impact prices and supply across industries.

Higher oil, gas and refined product prices feed into input costs, logistics, working capital and consumer demand, but if disruption to supply recurs or worsens, the risk shifts from cost to availability. Naphtha shortages can reduce production of petrochemicals. LNG tightness can pressure gas heavy power systems. Helium disruption can affect semiconductors, aerospace, healthcare, optical fibre and data centre supply chains. Higher fertiliser prices can reinforce food inflation, particularly in emerging markets where households spend a larger share of income on essentials. The Food and Agriculture Organization estimates that a 10 per cent increase in energy prices can translate into a 3–6 per cent increase in food prices, depending on the region, underlining how an energy shock can quickly morph into a social and political pressure point in lower income economies.

A short lived supply disruption can be managed by drawing down inventories (from existing oil on water, strategic and commercial stocks), alternative sourcing, or increasing flows from existing pipelines. Some companies are benefitting from hedging even if facing temporary margin compression but a prolonged disruption shifts the risk from earnings volatility to operational continuity, potentially forcing governments into explicit energy or feedstock rationing and making the shock non-linear rather than incremental. The key credit question then becomes not only whether an issuer can absorb higher costs, but whether it can continue to produce, deliver and fund itself without material balance sheet deterioration, covenant stress or liquidity events.

Figure 1: Oil and food imports across EM (per cent of total imports)

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Source: Bloomberg, HSBC AM, June 2026.

Energy producers benefit from price spikes, but Hormuz disruption cuts supply. Middle distillates (especially jet fuel and diesel) and petrochemicals face shortages into 2027.

The most immediate beneficiaries are in energy and energy linked sectors, but the credit implications are not uniformly positive. In May, the disruption effectively removed around 10 million barrels per day (mb/d) of crude and oil products from the market, around five times the scale of the Russian supply loss, and roughly 20 per cent of global LNG supply via Qatar has also been compromised. Alternative routes help, but they are constrained. Saudi Arabia’s East-West pipeline normally carries around 2–3mb/d and can theoretically rise to around 7mb/d. The UAE’s Fujairah pipeline can add roughly 0.5mb/d. These routes reduce the pressure, but they cannot fully offset the scale of disruption, particularly when regional infrastructure itself is impacted by attack.

Figure 2: Structural oil export dependence on the Strait across gulf producers

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Figure 3: Offsetting oil and products via Hormuz (Mb/d)

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Source: EIA, Kpler, HSBC AM, June 2026.

Strategic reserve releases also helped to buffer the shock, including the largest coordinated release in IEA history and national releases from countries such as China. But floating storage moved close to exhaustion and global oil inventories are at more than decade low levels. Even with some reopening of the Strait of Hormuz, the oil system may take two to three months to normalise, assuming limited infrastructure damage and a gradual reopening of shipping insurance, port capacity and trade flows.

Figure 4: Global oil inventories

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Source: J.P. Morgan Commodities Research, JODI, IEA, EIA, Kpler, HSBC AM, June 2026.

Against this backdrop, upstream oil and gas producers are clear beneficiaries where higher realised prices more than offset any production disruption, particularly for low- cost resource holders and companies with minimal physical exposure to the Gulf. LNG producers and pipeline operators also benefit from higher volumes, though for LNG the earnings uplift is likely to be spread over several years given the expected three-year period of market tightness before new US and Australian capacity fully offset the lost volumes by 2029.

Figure 5: New vs old Qatari LNG exports (mtpa)

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Figure 6: New vs old global LNG supply (mtpa)

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Source: Bloomberg, Jefferies, Energy Aspects, WoodMackenzie, HSBC AM, June 2026.

Refiners are benefitting from record high refining margin especially in middle distillates (diesel and jet fuel). Europe is particularly facing supply risk if the conflict extends by year end as stock deficit may reach critical threshold. Europe is indeed particularly exposed, with around 70 per cent of jet fuel imports at risk as on top of loss of oil products from the Middle East, China and India are now also exporting less oil products, the ban on Russian oil products is still on and exports from the US have now come to a maximum level.

Figure 7: Share of imports from Middle East (per cent)

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Source: S&P Global, HSBC AM, June 2026.

For the Petrochemicals sector, the closure of the Strait of Hormuz disrupted Gulf exports of key products (e.g., PE/PP, sulphuric acid; fertilisers 30 per cent+). Tighter naphtha is forcing Asian producers (mainly ex‑China) into force majeures and lower run rates of production. US ethane/ethylene-advantaged assets are best placed to benefit by exporting low-cost volumes into Asia, while Europe’s naphtha-based crackers may get some uplift from fewer Asian imports, though weak macro demand caps the upside. Even with a rapid reopening, damage, insurance, fuel prioritisation and port constraints could leave supply-chain impacts lingering into 2027.

Utility profitability and credit quality depend on the power mix, LNG exposure and pass-through mechanisms. The US is relatively insulated, Europe mainly faces higher and more volatile costs, and Asia is most exposed. These pressures strengthen the case for electrification and regulated grid investment.

For utilities, the impact of supply disruption on profitability and credit quality depends on a number of factors including the power mix, LNG exposure, the strength of pass-through mechanisms and regional variations. Damage to Qatari LNG facilities means the global market could remain tight for around three years, even if the Strait of Hormuz is fully reopened and remains so. That is a very different adjustment profile from oil, where logistics may normalise within a few months if routes reopen and infrastructure damage is limited.

The US is relatively insulated as a net LNG exporter, so that US utilities see limited volume and price risks. Europe is better positioned than during the Russia gas crisis because it has diversified supply, increased LNG imports from the US and hedged a significant portion of utility and industrial gas needs for roughly one to one and a half years. The risk for Europe is therefore less about immediate volume shortage and more about a higher and more volatile cost base feeding into industrial competitiveness and consumer bills over time. Asia, by contrast, is more exposed. Around 90 per cent of Qatar’s LNG exports go to Asia, and several economies maintain a high share of gas fired power. Korea is particularly vulnerable because of its gas heavy power mix, reliance on Qatari LNG and weaker cost pass through record, which can leave integrated power and gas utilities with rising leverage and receivables if tariffs do not adjust sufficiently.

China’s power generators are less exposed because gas represents only around 3 per cent of the power mix, though gas utilities may face lower margins and volumes as higher LNG prices are only partially passed through to industrial customers. Over the longer term, these pressures reinforce the strategic case for electrification, renewables, nuclear, storage and grid investment. China’s energy transition illustrates the scale of change already underway as the country added close to 450GW of solar and wind capacity last year, roughly twice as much as the rest of the world combined, Meanwhile Europe is pushing hard on the electrification of transport and heating while Japan and others reconsider nuclear.

Figure 8: Total energy supply

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Figure 9: Electricity generation

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Total energy supply includes all the energy produced in or imported to a country, minus that which is exported or stored. It represents all the energy required to supply end users in the country. Source: IEA, HSBC AM, June 2026.

For credit investors, this all reinforces the structural importance of regulated networks, grid infrastructure and issuers aligned with energy security and transition themes, which may see more stable regulatory frameworks and capex opportunities despite near term fuel cost volatility.

High fuel prices may depress auto demand and output, worsening pressure from EV transition. Steel/aluminium face energy, freight and chemical cost shocks, while Semiconductors risk helium/power disruptions.

Autos have limited direct Middle East exposure, yet prolonged high fuel prices could weaken consumer confidence, delay purchases and push demand toward smaller, lower margin vehicles, just as global production forecasts are being revised down. 2026 light vehicle production outlook has already been cut by around 2.4 per cent versus flat at the start of the year, roughly half the downward revision seen in 2024 but still meaningful for a sector with high fixed costs. It is manageable for some mass market producers with efficient platforms , who may be able to shift from premium OEMs towards smaller models, but adds cyclical pressure to a sector already facing Chinese EV competition and structural transition.

For steel and aluminium, higher thermal coal and gas demand can lift input costs, while shipping disruption raises freight rates and reduces delivery reliability, particularly for aluminium which is highly dependent on bulk shipping. Steel producers also face potential bottlenecks in industrial chemicals used in processing, which can become constraints when petrochemical supply is tight. Trade protection and local production can partly offset these pressures in the US and Europe, where tariffs and carbon regulation support pricing power for integrated producers, but emerging markets without such protection are more exposed to cost shocks.

Semiconductor production in Korea and Taiwan depends on stable electricity and specialised inputs, particularly helium, ultra pure gases and chemicals. Qatar produces roughly one third of global helium, which is critical for semiconductors, aerospace, healthcare, optical fibre and data centre supply chains. The mitigating factor is that leading chipmakers are better prepared than during previous supply chain disruptions. They typically hold several months of helium inventory, have diversified sourcing from the US and Algeria as the helium market moved into oversupply last year, and are improving recycling processes. In addition, governments increasingly treat semiconductor fabrication as strategic infrastructure, so in a power shortage they are likely to be prioritised, limiting outright shutdown risk. Even so, the credit issue is not simply whether margins compress. It is whether production can continue without yield loss, downtime or expensive restarts.

Emerging market debt is most exposed to Middle East tensions via GCC and Asian importers, while prolonged disruptions may trigger liquidity and sovereign stress. A broad defensive move is not yet warranted, but a prolonged disruption could shift risks from price effects to supply shortages.

Emerging market debt has the highest direct exposure to renewed tension in the middle east through GCC issuers and the dependence of several Asian countries on imported energy and food. EMD also embeds sovereign level vulnerabilities where higher energy and food prices can trigger rating pressure, with knock-on effects for quasi-sovereigns and bank capital structures. Asia feels the supply chain shock earlier and more broadly because its manufacturing base is tightly interconnected and its reliance on Gulf energy and feedstocks is greater. Although many US dollar corporate issuers remain fundamentally resilient and are often quasi-sovereigns or national champions with implicit state support.

Latin America, by contrast, is relatively better insulated through geography and commodity abundance, with several countries net exporters of oil, gas or agricultural products. The US also appears well positioned, benefiting from domestic energy, stronger supply chain resilience and trade protection in some industrial segments. US autos, metals and chemicals are less exposed and in some cases benefit from export opportunities into constrained markets.

Europe sits between these poles being less exposed than Asia to direct Gulf supply, but more vulnerable than the US via higher energy costs, weaker growth and pressure in selected industrials, especially chemicals and autos where Chinese competition and the energy transition already pose structural challenges.

Figure 10: Sector wise regional exposure and risks

Sector	Asia	Europe	US	Emerging Markets (broad)	Key anchors
Oil and Gas (upstream)	Medium exposure / Often resilient	Medium / Resilient	Low / Resilient	Medium / Mixed	Higher prices can offset production loss; disruption scale ~10 mb/d
Refining and integrated downstream	High exposure / Mixed resilience	High exposure / Mixed	Medium / Mixed	Medium / Mixed	Refining margins rose more than Brent; diesel/jet fuel tightness
Jet fuel and diesel-dependent sectors (e.g., airlines, logistics)	High / Lower resilience	High / Lower	Medium / Mixed	High / Lower	Europe: ~70% jet fuel imports at risk
Petrochemicals (naphtha-based)	High / Lower	Medium / Mixed	Low / Higher	Low / Mixed	Asia relies on Middle East for ~60% naphtha; force majeure, utilisation cuts
Petrochemicals (ethane-based)	Medium / Mixed	Medium / Mixed	Low / Higher	Medium / Mixed	US ethane route advantaged; export margins improved
Fertilisers	Medium / Mixed	Medium / Mixed	Medium / Mixed	High / Lower	Energy-to-food pass-through: 10% energy → 3–6% food
LNG and gas utilities	High / Lower	Medium / Higher	Low / Higher	Medium / Mixed	LNG tight ~3 years; Qatar ~20% global LNG; Europe hedged ~1–1.5 years
Power utilities (overall)	Medium–High / Mixed	Medium / Higher	Low / Higher	Medium / Mixed	Korea vulnerable (spot exposure + weak pass-through); China power mix gas ~3%
Autos	Medium / Mixed	Medium / Mixed	Medium / Mixed	Medium / Mixed	Risk shifts from cost to reliability if prolonged; demand timing risk
Steel and aluminium	Medium / Mixed	Medium / Mixed	Low–Medium / Higher	Medium / Mixed	Energy intensity + freight disruption; aluminium shipping dependence
Semiconductors and tech hardware	High / Mixed	Medium / Mixed	Medium / Mixed	Low / Mixed	Helium risk: Qatar ~1/3 global helium; mitigants: inventory, diversification, recycling

Source: S&P Global, HSBC AM, June 2026.

For now, developments in the Middle East don’t justify a broad defensive repositioning across credit. It does, however, demand greater selectivity and a focus on balance sheet strength, supply chain resilience and pricing power. If the disruption renews or persists, the associated credit risk is likely to become nonlinear. The shock would then evolve from being primarily price led – where costs rise, margins adjust, and markets reprice – to one driven by depleted inventories, unreliable delivery and potential production rationing. At that point, analysis must move beyond earnings sensitivity to focus on liquidity, working capital management, sovereign linkage risk and the durability of free cash flow under stress.

For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. The views expressed above were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and not guaranteed in any way. HSBC Asset Management accepts no liability for any failure to meet such forecast, projection or target. Source: HSBC Asset Management, July 2026.