select languages
latestnewslatestnews RSS
Home > Business > Market
(News Focus) Middle East unrest feared to dampen Asian economy
By Kim Young-gyo
HONG KONG, Feb. 22 (Yonhap) -- Political upheavals sweeping Libya and some Middle Eastern countries will likely have a short-term negative impact on the Asian economy by driving up oil prices and unnerving investors, market watchers said Tuesday.

   Street protests and popular unrest, which started when Africa's northernmost country, Tunisia, ousted its long-time leader, sparked a similar turn of events in neighboring countries such as Egypt and Libya.

   "As for the long-run economic impact of a possible information technology-driven spread of freedom, presumably this is positive as better government leads to better economic performance," said Paul Sheard, global chief economist at Nomura Securities International.

   "In the short run, though, increased uncertainty is likely to raise risk premium, and transitional costs are bound to be high."

   John Roberts, director of research at U.S. financial firm J.J.B. Hilliard, W. L. Lyons, LLC, expressed a similar view.

   "Longer term, such events typically do not leave a lasting impression upon markets. Rather, long-term economic fundamentals have the most pronounced impacts, and we do not believe this situation will be any different," he said.

   "We believe there could be some fairly significant near-term impacts, the most obvious of which is increased volatility in the markets. Markets never like uncertainty, and situations such as this invariably create uncertainty as they slowly grind to some type of conclusion."

   The most immediate impact has been felt on the oil market as market participants worry that violence in Libya could lead to supply disruptions from the oil-producing countries in the Middle East.

   The future price of Brent crude oil, which is used as a benchmark for pricing other classifications of oil, rose on Tuesday by more than US$2 from the previous session to as high as $108.18 per barrel.

   Many analysts, however, expected any further change in oil prices will be mostly driven by increasing demand, as supplies seem more than plentiful in recent days.

   "We may increase our range (of the estimated oil price) in the event there is significant and prolonged unrest in the Middle East or if it spreads across a few countries with high petroleum reserves, such as Saudi Arabia," said Jason Yap at Malaysia's leading investment bank, OSK Group.

   Saudi Arabia is known to have the world's largest oil reserve with 267 billion barrels. Other big holders of oil reserves in the region include Iraq with 180 billion barrels, Iran with 138 billion barrels, Kuwait with 104 billion barrels and the United Arab Emirates with 98 billion barrels.

   Libya and Nigeria follow with 41 billion and 36 billion barrels, respectively.

   "Until then, we think that oil price may just spike up when new unrest unfolds, although this may not last long because in the longer term, the price would still depend on supply and demand, which depends on the health of the global economy as a whole and the need for oil-producing countries to continue bolstering their oil revenues," Yap said.

   Roberts also expected other commodities, especially food commodities like wheat, may be more impacted than oil.

   "One reason for the current Middle East unrest is commodity inflation that has driven the cost of food significantly higher in these countries." he said.

   "Regimes in other Middle East countries may very well increase subsidies and reduce exports to keep prices down and supplies up as a means of propping up their governments and to head off the similar popular revolts."

   Libya's woes have also sent most Asian stock markets tumbling as investors worried that rising oil prices resulted from the escalating tension in the region will negatively affect the economy.

   The South Korean stock market was hit hard by the Libyan violence on Tuesday, with the benchmark Korea Composite Stock Price Index (KOSPI) plunging 1.76 percent to close at 1969.92.

   Japan's Nikkei average fell 1.78 percent. China's benchmark index in Shanghai sank 2.38 percent, and Hong Kong's Hang Seng Index was down 1.92 percent in the afternoon session.

   "Investors have become jittery as they expect international oil supply will get hurt if this political trend continues in the Middle East region," said Lee Sang-won, a strategist at Hyundai Securities.

   "Markets will not be largely affected if it does not spread to other countries, but it is hard to predict. We have to watch how things will turn out."