|
|||||||||||||||||||||||||||||
|
JANUARY 31, 2000 VOL. 155 NO. 4
Caution is particularly critical in Asia, where many economies depend heavily on imported oil. A sharp rise in energy costs could endanger the region's fragile recovery from a prolonged economic slump. True, Indonesia, Asia's only OPEC member, stands to benefit from higher oil prices. But big manufacturing economies like Japan and South Korea could take body blows. Seoul's Ministry of Commerce, Industry and Energy estimates that a 25% rise in oil prices would mean a 2.4% hike in domestic electricity costs. Every $1 rise in the cost of a barrel of oil, the ministry says, pushes South Korea's annual import bill up by $870 million while reducing the value of exports by $170 million. If prices continue to soar, Korea won't come near to meeting its forecast $12 billion current account surplus for this year, which had been calculated on the expectation of oil prices stabilizing at $20 a barrel. It's not time to panic--yet. Increased economic activity in Asia during the past six months has helped compensate for the steady rise in oil prices. But many analysts think things will get worse. "Prices will go higher," concludes Leo Prollas, chief economist for the London-based Center for Global Energy Studies, an influential industry think tank founded by the now-retired Sheikh Yamani. Asia--indeed, the entire world--had an easy run with oil during much of the 1990s. With Kuwait back onstream and Iraq's massive reserves kept in check by a United Nations embargo (but never far from traders' minds), oil prices were mostly flat, trading in the $15-$18 range. That helped keep overall price levels down in key economies like the U.S., and low inflation meant low interest rates. The 1997 Asian financial crisis caused demand throughout the region to slump, which also kept oil prices in check. But with Asia starting to get back on its feet and OPEC economies evidently wearying of a decade of low revenues, oil prices soared 138% in 1999--a bonanza for traders and oil companies but worrying for oil-dependent economies. Where is the benchmark price headed? Prollas expects it to rise to $30 a barrel in the short term and--if OPEC can agree to maintain its quotas at its March meeting--to as much as $35 by the end of the year. He notes ominously that Ali's remarks were supported by both Iran and Mexico, OPEC's next two most influential members. "That's rare unity for OPEC," Prollas says. To be sure, there are dissenters within the cartel: Venezuela's President Hugo Chavez, for example, has intimated that he doesn't want to be limited by the oil group's quotas. Picking up on such disagreement, Eugene Choung, oil analyst in Singapore for Morgan Stanley, expects output quotas to ease. He figures that prices will settle at a "comfortable" $20-$25 this year. But turmoil within OPEC is unpredictable. As oil-industry wags like to say, OPEC is like a tea bag--it functions best when it's in hot water. TIME Asia home Quick Scroll: More stories from TIME, Asiaweek and CNN | ||||||||||||||||||||||||||||
|
Back to the top |
© 2000 Time Inc. All Rights Reserved. Terms under which this service is provided to you. Read our privacy guidelines. |