Vietnam: Energy shock risks growth and inflation – MUFG

MUFG’s Senior Currency Analyst Michael Wan argues that Vietnam faces a stagflationary shock if Strait of Hormuz disruptions persist, with higher Oil and energy costs hitting growth and lifting inflation. The bank estimates each US$10/bbl Oil increase cuts GDP by 0.2pp and raises inflation by up to 0.4pp, with 2026 growth potentially falling below 7.5% under severe scenarios.

Oil-driven stagflation risk for Vietnam

"This time is different in this crisis - it is not just about higher oil prices but a potential looming energy shortage, with Asia and to some extent Vietnam hit by a prolonged Strait of Hormuz closure: While this applies to the rest of Asia as well, the vulnerability specifically in Vietnam’s case comes from its dependence on crude oil imports from the Middle East."

"Overall, Vietnam is not as leveraged to the Middle East in terms of direct trade linkages relative to say India within Asia-ex-Japan."

"Nonetheless, the indirect effects across a range of sectors could also be meaningful for Vietnam beyond the first order impact, and ultimately points to a stagflationary environment of higher inflation and slower growth, with a weaker Vietnam Dong likely a key outcome as well."

"Overall, we estimate that every US$10/bbl increase in oil prices cuts GDP growth in Vietnam by around 0.2pp and raises inflation by around 0.3-0.4pp."

"Our GDP forecasts for Vietnam is currently 8.2% for 2026, and if oil prices rise above our baseline assumption to average US$100/bbl on a sustained basis, growth will likely come in below 7.5% for instance."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)