Surging oil to hurt Asian economies

Surging oil to hurt Asian economies

Alexa Olesen, Associated Press, Singapore

Oil-importing Asian countries can expect higher unemployment, inflation and curtailed economic growth if oil prices remain at their current 13-year high, analysts say.

Crude oil prices have risen 13 percent in the past month to more than US$39 a barrel amid concern about terror attacks in crucial oil-producing Middle East nations and growing demand in China.

The higher prices could hurt Asia's economies just as many have started to recover from the economic fallout of the Iraq war and the outbreaks of SARS and bird flu.

As long as "prices remain in the $30s, Asian economies will suffer," said David Thurtell, commodities strategist at Commonwealth Bank of Australia in Sydney.

The International Energy Agency, a watchdog for oil importers, warned in a report Monday that a $10 price increase per barrel of oil sustained over one year could trim about 0.8 percent off Asia's overall economic growth, bringing higher unemployment and inflation.

"The countries that import a lot of oil like India, China, Japan, Korea and Taiwan, will be most negatively impacted," said Adrian Loh, a Singapore-based regional energy analyst with Merrill Lynch.

Thurtell said he expects oil prices to fall back to the low- 30s in the medium term, while Loh said prices will stay "generally high in the long term" mainly because of the strength of OPEC and the lack of alternative supplies.

"Lots of people still labor under false impression that OPEC is riven by internal dissent but it's a very strong cartel and they have managed to keep the price within a very tight band," Loh said.

Merrill Lynch recently upgraded its long term outlook for oil to $28 a barrel.

For India, which imports about 70 percent of its oil, the price hikes are "a major cause for concern," said Anjan Roy, an economist with the Indian Federation of Chambers of Commerce and Industry, a grouping of private businesses.

"It will raise the cost and the domestic price of gasoline," Roy said. "It might even affect the pace of economy. We should be able to cushion all this, but this will definitely have a major impact."

For China, the world's second largest oil importer, higher oil prices may not be enough to slow down the country's juggernaut growth in the short term. That's because the two leading oil companies, Sinopec and Petrochina, are majority owned by the government, meaning that prices can be controlled, said Loh.

"In the short to medium term, (high oil prices) may not be a big speed hump for the Chinese growth engine, but if they persist for much longer, it is going to be a problem," Loh said.

For nearby Taiwan however, the impact is likely to be keenly felt.

"The oil price hike could add to wages and production costs and further cut down profits," said economist Wu Chung-shu with the research organization Academia Sinica. He added that some companies may be forced to shut down.

Taiwan's export-driven economy could suffer if the increase in oil prices slows world economic growth, Wu said.

In Thailand, the government has spent 7 billion Thai baht ($175 million) in subsidies to oil companies to hold down gasoline and diesel prices since Jan. 10.

But on Friday Bangkok announced it would raise premium gasoline prices by 60 satang (about 2 U.S. cents) per liter to a record high of 17.59 baht (44 U.S. cents).

Only the few net exporters of gas and oil in the region - Malaysia, Indonesia and Brunei - stand to gain from oil's current price tag.

"It will add to the countries' coffers," said Merrill Lynch's Loh.

Nymex light, sweet crude oil futures set for June delivery settled down 20 U.S. cents at $39.37 a barrel late Thursday, ending lower for the first time in three days but still near a 13-year high.