Higher oil prices, if sustained, could sharply cut economic growth in Asia and trigger spikes in inflation and interest rates, the chief economist of the Asian Development Bank (ADB) said yesterday.
Economist Ifzal Ali also warned that even if geopolitical uncertainties pushing prices higher were resolved, growing demand would still keep oil at a floor price of between US$33 to US$36 per barrel.
Among oil-importing economies in the region, China, Hong Kong, India, South Korea, Malaysia, the Philippines, Singapore and Thailand would be the worst hit, the ADB said.
"If oil prices are going to persist at US$50 per barrel, there are going to be some important downsides that are going to result," Ali told reporters.
World oil prices simmered just above US$50 yesterday after a pledge by Saudi Arabia to lift output brought only fleeting respite to a market gripped by supply fears, analysts said.
The price of light sweet crude for November delivery rose US$0.15 to US$50.05 a barrel in pre-opening electronic trading on the New York Mercantile Exchange.
In London the price of reference Brent North Sea crude oil for delivery in November slipped US$0.10 to US$46.35 in electronic deals, easing back from a historic peak of US$46.80 seen on Tuesday.
The latest surges in prices came after a separatist movement in Nigeria accused of trafficking in illegally extracted crude in Nigeria threatened to attack international oil facilities and personnel in the Niger Delta region.
"Threats to Nigeria's oil supply are the latest in a series of short-term supply concerns to plague the oil market this year," Standard Chartered analysts wrote in a research note.
Nigeria produced 2.45 million barrels per day last month, just under 9 percent of the production of the OPEC oil cartel, excluding Iraq, they noted.
ADB's Ali said higher oil prices would cause cost-push inflation, which in turn will result in "high interest rates in all the countries in the region."
This will undercut household consumption which has been fuelling growth in many Asian countries.
More troubling is the possibility that higher inflation and interest rates could "snuff out" the recovery in business investment that has taken place in Southeast Asia this year, he said.
Using a baseline of US$30 a barrel, the ADB said in a recent report that a sustained rise of US$10 a barrel above that mark would see developing Asia's GDP growth pared back by 0.8 percentage points this year. Inflation would rise 1.1 points and the trade balance would swing to a deficit equal to 0.4 percent of total output.
Under the bank's worst-case scenario of a sustained US$20 price rise above the baseline estimate, regional growth would be trimmed by 1.5 percentage points and inflation would rise 2.0 points.
The ADB also advised Asian governments to consider phasing out fuel subsidies and adopting measures to boost efficiency. They should also consider incentives to develop and use alternative energy resources.
Asian economies are more energy intensive and less energy efficient than industrial countries, and are growing faster than the rest of the world, the ADB warned in its report.
While the region produces 11 percent of total world oil supply it consumes about 21 percent, meaning that it now imports more than 44 percent of its oil consumption.