Japan's economy 'most exposed' in Iraq war
CNN Asia Business Editor
SYDNEY, Australia (CNN) -- Japan is Asia's most exposed economy to a possible U.S. war on Iraq because of its high dependence on imported energy and exports, according to a new regional analysis.
Oil accounts for 52 percent of Japan's total energy supply, and about 86 percent of its $50 billion in annual oil imports comes from the Middle East.
That is a far higher figure than the 25 percent dependency on Mid-East oil for the United States and 5 percent for the U.K., according to Japan's New Energy Foundation.
South Korea and Taiwan are also heavily dependent on oil from the Middle East. Between them, the three countries account for about 85 percent of East Asia's oil imports.
Military analysts say oil tankers heading out of the Arabian Gulf would likely become targets if hostilities break out. That in turn would put pressure on oil supplies in Asia, despite most refiners keeping reserves of at least 70 days.
On Tuesday the U.S. Navy warned that al Qaeda terrorists may be planning attacks against tankers, sending oil prices to $30 a barrel on the NYMEX Wednesday. (Full story)
West Texas Intermediate for October delivery closed at $29.77, after briefly touching the $30 mark. In London, Brent crude closed at $28.40.
Recovery won't be derailed
But while a war in Iraq would lead to a general reduction in growth across Asia, it would not derail regional recovery, Sydney-based analyst IMA Asia says in its latest economic outlook.
It says that despite the "strong possibility" of such a war, the second half of 2002 is shaping up as stronger than the first half for Asia.
IMA Asia has already upgraded its 2002 regional growth forecast to 5.2 percent for Asia excluding Japan, and to 0.5 percent for Japan itself.
The upgrade comes as Japan revised its June quarter GDP figures upward Wednesday to 0.6 percent, for an annualized rate of 1.9 percent, and Japanese Prime Minister Junichiro Koizumi prepares to meet U.S. President George W. Bush on Thursday.
Asia's energy supplies will come into even sharper focus next week when the OPEC group of oil producers meet in Osaka, Japan, on September 19 to discuss their output for the last quarter of this year.
Most OPEC oil ministers are thought to be against raising the cartel's output beyond the official limit of 21.7 million barrels a day, despite "leakage" or over-production last month estimated at 2.15 million bpd.
OPEC member Indonesia will propose a flexible production quota at the meeting, according to comments Wednesday by the country's energy and mineral resources minister, Purnomo Yusgiantoro.
No attack 'before November 5'
Despite Asia now getting some oil supplies from Latin America, Africa, Russia and Europe, the region's dependence on the Middle East is growing.
A study by the East-West Center in Hawaii last year found that by 2005, 67 percent of the Asia-Pacific region's oil will come from imports, mostly from the Middle East.
IMA Asia said the expectation of U.S. military action against Iraq has started to undermine investor sentiment in the OECD countries (which include Japan, South Korea, Australia and New Zealand).
It said many countries were adopting a "wait and see" attitude in their business plans in the final months of 2002.
That was linking into the delay in a U.S. investment recovery, which it said was now being pushed back from the third quarter of this year to the first quarter of 2003.
"The main variation introduced by an imminent Iraq war is that some OECD companies appear to be launching another round of restructuring and job cuts," IMA Asia said. "This could weaken consumer demand".
IMA Asia said the military effectiveness of any action by the U.S. against Iraq was undoubted, but less certain was the damage that might be done to political alignment with Russia, China and allies in Europe.
It also warned that businesses should prepare for some country-specific problems in Asia if war eventuates.
It said that in East Asia's two main Islamic countries, Indonesia and Malaysia, a rise in anti-U.S. sentiment should be expected, even though the governments of those two countries favored good relations with the U.S.
Singapore's Senior Minister Lee Kuan Yew, who met Chinese President Jiang Zemin in Beijing on Tuesday, said war undoubtedly would have an impact on regional stability and economic growth, the Straits Times reported Wednesday.
While the timing of any attack is uncertain, some analysts do not expect any U.S. action before congressional elections on November 5.
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