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The Euro debt had posed a big threat to the economic growth in Asia. This threat however will soon be replaced by the rising oil prices. The high prices on oil will suffocate oil demand while having adverse effects on exports. It may also prove to be a trigger for sparking inflation. The global economy is counting on Asia to minimise the impact of the recession in Europe and also aid the US to make a full economic recovery. Any economic threat to Asia poses a threat to the global economy as Asia will play a crucial role in buffering the impact of the recession. As the threat of a financial crisis looming over the horizon receded, the steep oil price paints a negative picture, threatening economic growth in Asia. Oil is an important commodity in Asia. Asia is the largest consumer of oil and accounts for more than 31% of the global oil demand. Asia is home to the four largest oil consuming countries in the world such as China, Japan, India and South Korea. Asia imports almost two thirds of oil to satisfy its oil demand. Even after excluding Japan this makes for a huge oil bill. The expenses on oil also take a larger share of the gross domestic product (GDP) in Asian countries as opposed to countries in the west. In fact, the oil demand from Asia is in part the reason why prices remained modest in spite of the slow economic growth and the European debt crisis. Most analysts believe that the geopolitics in the Middle East is the major reason for the current hike in oil prices. Although this is a factor responsible for high oil prices, it is not the whole truth. Asia’s huge appetite for oil is also in part responsible for escalating oil prices. At present the immediate threat to Asia seems inflation due to spiked prices. However, the true threat is to the economic growth in Asia. Exports to the west are already fragile and may not be able to withstand another blow. Even India, China, Japan and South Korea may feel the harsh impact of spiked prices. It is critical to analyse the impact of the oil shocks and its likely cause. The negative impact of the soaring prices will be less damaging if they are caused by an increase in demand rather than due to a disruption in oil supply. The writer is a veteran columnist in oil related fields, who frequently writes articles related to oil prices & indexes and crude oil including tips on investment in oil. Please visit oil.com for more details.
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