As tensions flare in the Middle East following Iran's recent attack on Israel, concerns loom over the potential ramifications for Asia-Pacific economies. Moody?s Analytics warns that escalating conflict could trigger further economic uncertainty, primarily by driving up oil prices.
Before the weekend attack, prices for West Texas Intermediate crude lingered between $85 and $90 per barrel, including a $5 risk premium due to anticipated hostilities. Analysts now foresee an additional $5 increase, potentially pushing prices to $90 to $95 per barrel.
The scenarios ahead vary, with the likelihood of a restrained Israeli response following international urging, potentially led by the United States. This could temper the risk premium in the coming weeks. However, a more forceful retaliation could propel prices past $100 per barrel, spelling dire consequences for economies across the Asia-Pacific region.
Many of these countries heavily rely on oil imports and are already navigating choppy economic waters. A significant surge in oil prices could disrupt their progress, complicating efforts to manage inflation, already exacerbated by elevated 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," noted a Moody's analyst. "Higher oil prices can compound these challenges by increasing the cost of production and transportation, impacting everything from food to basic goods."
This surge comes at a precarious time for these economies. Efforts to curb inflation have stalled in several countries, including Indonesia, South Korea, Singapore, Vietnam, and Malaysia. Government initiatives aimed at easing price pressures might be overwhelmed by an oil price shock.
Even oil-exporting nations in the region, such as Malaysia and Brunei, may not entirely benefit from rising oil prices. Potential revenue gains could be offset by weaker global demand, which might worsen if inflation escalates globally and forces consumers to pull back on spending.