New Delhi: As tensions flare in the Middle East following Iran’s recent attack on Israel, there is growing concern that escalating conflict could thrust Asia-Pacific economies into further economic uncertainty by driving up oil prices, according to Moody’s Analytics.
Before the weekend attack, prices for West Texas Intermediate crude hovered between $85 and $90 per barrel, inclusive of a $5 risk premium due to anticipated hostilities. Analysts now predict this could increase by an additional $5, pushing prices to between $90 and $95 per barrel.
The scenarios ahead vary, with the most likely being a restrained Israeli response following international urging, potentially led by the United States. This could temper the risk premium in the weeks ahead. However, a more forceful retaliation could see prices surge past $100 per barrel, an outcome that would have severe ramifications for economies across the Asia-Pacific region.
Many of these countries are net oil importers and are already navigating choppy economic waters. A significant jump in oil prices could disrupt their progress, complicating efforts to manage inflation which is already being pushed higher by increased food and energy costs.
The stakes are particularly high as inflation has stubbornly persisted in the region, with consumer price indexes remaining above central bank targets due to elevated food prices. “Higher oil prices can compound these challenges by increasing the cost of production and transportation, impacting everything from food to basic goods,” noted a Moody’s analyst.
This comes at a particularly precarious time for these economies. Efforts to curb inflation have stalled in several countries, including Indonesia, South Korea, Singapore, Vietnam, and Malaysia. Government initiatives in these countries, which have been aimed at easing price pressures, might be overwhelmed by an oil price shock.
Even the region’s oil-exporting nations, such as Malaysia and Brunei, may not entirely benefit from rising oil prices. Any potential revenue gains could be offset by weaker global demand, which might worsen if inflation kicks up globally and forces consumers to pull back on spending.
The ongoing situation in the Middle East underscores the delicate balance of global economic stability and the broad implications of geopolitical strife, signaling a critical period for policymakers and economic strategists worldwide as they navigate these turbulent times.
