Oil price shock may weigh on Vietnam’s growth, inflation: expert

Geopolitical tensions in the Middle East are fueling volatility in global energy markets, raising the risk that higher oil prices could pressure Vietnam’s growth and inflation through exchange rates, commodity costs, and imported inflation, according to Assoc. Prof. Dr. Tran Viet Dung, director of the Banking Research Institute at the Banking Academy of Vietnam.

How will rising oil prices and potential supply chain disruptions affect Vietnam’s economy and the 10% GDP growth target for 2026?

To assess the impact, we should first consider three main scenarios regarding oil prices and geopolitical conflict. In the positive scenario, when tensions ease relatively quickly and oil prices fluctuate around $75-85 per barrel, the impact on Vietnam’s economy would mainly be short-term, inflation would increase only slightly, and growth could remain relatively stable.

In the baseline scenario, oil prices stay around $85-95 per barrel for several months, with higher transportation and maritime insurance costs. Under this scenario, Vietnam’s inflation could rise by about 0.3-0.6 percentage points, and economic growth would face moderate downward pressure.

In the negative scenario, if the conflict persists and oil prices exceed $100 per barrel, the impact would be much stronger. Rising energy and logistics costs would simultaneously push inflation higher and weaken growth. Estimates suggest that every additional $10 increase in oil prices could reduce GDP growth by about 20-30 basis points.

Vietnam is currently quite sensitive to fluctuations in global energy prices due to its significant dependence on imported energy inputs. In 2025, total imports of energy products reached about $18.8 billion, while exports were only about $2.3 billion, meaning the country recorded an energy trade deficit of more than $16 billion.

When oil prices rise, higher energy import costs worsen the terms of trade and erode profit margins in the manufacturing sector.

Therefore, if oil prices remain high for a prolonged period and are accompanied by supply chain disruptions, Vietnam’s high growth target for 2026 could face considerable pressure, particularly in manufacturing, transportation, and export industries that rely heavily on logistics and imported inputs.

Concerns that rising energy prices may force the U.S. Federal Reserve to adjust its interest rate roadmap, putting pressure on the State Bank of Vietnam (SBV). Could the SBV consider raising interest rates slightly?

Tensions in the Middle East could lead global markets to reassess inflation expectations and the Fed’s interest rate trajectory, especially if energy prices remain elevated long enough to influence inflation expectations.

In that case, the interest rate differential between the USD and the VND could come under pressure, affecting exchange rates and capital flows in emerging markets. Under such circumstances, SBV would face the challenge of balancing exchange rate stability, inflation control, and economic growth support.

In the baseline scenario, I believe the likelihood of SBV raising policy rates immediately is relatively low. The regulator will likely prioritize short-term tools such as liquidity management, central bank bills, and foreign exchange interventions to stabilize the exchange rate and market sentiment.

In this scenario, the typical policy strategy is “wait and see,” keeping interest rates stable to avoid placing additional pressure on the economy.

Only if pressures from exchange rates, imported inflation, and market expectations increase clearly and persist for a sufficient period should a rate hike be seriously considered.

Higher oil prices could indirectly affect Vietnam through exchange rates, commodity markets, and imported inflation risks. How significant could these impacts be under different scenarios?

An energy shock from the Middle East could be transmitted to Vietnam through three main channels.

The first is the exchange rate channel. When geopolitical risks increase, international capital tends to move toward safe-haven assets such as the U.S. dollar. This strengthens the USD and puts depreciation pressure on emerging market currencies, including the Vietnamese dong.

The second is the commodity price channel. Higher oil and LNG prices increase transportation, logistics, and input costs for materials such as chemicals, plastics, and fertilizers. These costs raise production expenses for businesses and eventually pass through to consumer prices.

The third is the risk of imported inflation. According to macroeconomic estimates, every $10 increase in oil prices could raise Vietnam’s CPI by around 0.25-0.35 percentage points. In a negative scenario where oil prices exceed $100 per barrel, inflation could increase by around 1 percentage point compared with initial forecasts.

Beyond these three channels, several other factors are also worth noting, such as sharply rising maritime insurance costs, potential disruptions in LNG supply, higher fertilizer prices, and volatility in international capital flows. These factors could amplify the impact of an energy shock on the economy.

What policy measures would you suggest for monetary policy management in the coming period?

Monetary policy management should follow three layers of solutions. The first is short-term stabilization via liquidity management, exchange rate stability, and market expectations. The second is policy coordination, particularly with fiscal policy and the management of state-regulated prices. The third is improving forecasting capacity and building policy response scenarios based on external risk thresholds.

In the short term, the top priority is stabilizing the foreign exchange market and inflation expectations. The SBV can flexibly use tools such as open market operations to manage liquidity, issuing treasury bills to absorb excess VND liquidity, and foreign exchange interventions when necessary to limit exchange rate volatility.

At the same time, monetary policy should be closely coordinated with fiscal policy. If energy prices rise sharply, flexible adjustments to fuel taxes and fees or delaying price adjustments for state-regulated goods could help ease cost-push inflation pressures, thereby reducing the burden on monetary policy.

In the medium and long term, regulators could establish policy response frameworks linked to oil price and inflation thresholds, helping markets better understand policy direction and reducing volatility driven by sentiment. Clear and consistent policy communication is also essential to prevent excessive market reactions.

Amid rising external risks, what factors could help Vietnam’s economy maintain resilience?

Despite exposure to external shocks, Vietnam still has several important resilience factors. First, the trade balance and FDI inflows remain relatively positive, supporting foreign currency supply in the medium term. Second, the banking system generally maintains stable liquidity and interest rate levels.

Third, regulators have accumulated more experience in responding to major shocks in recent years, from the pandemic and supply chain disruptions to exchange rate volatility and global inflation. In addition, Vietnam’s deeper integration into regional supply chains helps maintain its attractiveness to foreign investors over the medium and long term.

Which indicators should be closely monitored in the coming period?

There are four groups of indicators that should be closely tracked. The first are Brent oil prices, LNG prices, shipping freight rates, and maritime insurance costs, as these are early signals of cost shocks. The second are the U.S. Dollar Index, U.S. Treasury yields, and expectations for Fed interest rates, as these directly affect exchange rates and capital flows.

The third are CPI developments, particularly in transportation and energy, and core inflation, to assess how they impact domestic prices. The fourth are exchange rate movements, foreign exchange reserves, and the VND-USD interest rate differential in the money market, as these indicators reflect actual pressures on monetary policy management.