Higher Oil Prices Pose Fiscal, Inflation Risks For Asia -- OCBC

KUALA LUMPUR, March 9 (Bernama) -- Following the surge in global oil prices on March 9, Asian governments face heightened fiscal and inflationary risks from rising global oil prices as the region remains structurally dependent on energy imports, said OCBC.

It said that the Asia Pacific region continues to be a net importer of crude oil, natural gas and coal, leaving regional economies exposed to external energy shocks.

Data from the International Energy Agency (IEA) showed that Asia Pacific remained a net importer of these energy commodities for the decade through 2023.

This showed that the region’s economies would still use oil, coal and natural gas as key sources of energy. 

"Higher oil prices reverberating across other commodities, especially natural gas, further exacerbate the risk from an energy price shock," it said in its Global Markets research note today. 

OCBC also said Asia is still reliant on the Middle East for energy import requirements.

It said Singapore, Thailand, South Korea, India and Vietnam import a relatively substantial share of petrol and gas from the Middle East. 

Indonesia, while classified as a net energy exporter given its status as net coal exporter, still imports 11 per cent of total petrol and gas imports from the region.

OCBC said in its base case Brent crude prices are expected to fall below US$70 per barrel by mid-2026.

However, in a 'moderately severe' scenario where energy flows partially resume under military escort, Brent could remain around US$100 per barrel through mid-year before easing as global supply stabilises.

In an 'acute’ scenario involving a prolonged halt, Brent prices could surge to around US$140 per barrel and remain elevated through mid-year, it said. 

Sustained higher energy prices would likely weaken the trade balance across Asian economies, with trade surpluses narrowing and deficits widening.

The note said inflationary pressures would also intensify, particularly in economies without retail fuel subsidies.

The Philippines and India could see noticeably wider trade deficits alongside higher headline consumer price inflation compared with baseline forecasts.

For Indonesia and Malaysia, these countries expected to face wider fiscal deficits as governments absorb higher subsidy costs.

Meanwhile, the fiscal impact for China and the Philippines is expected to be more muted, while Thailand and Vietnam have cross-subsidy oil funds that could cushion the fiscal effects in the near term.

-- BERNAMA