Reduced production: Residents lining up for their Covid-19 test in Shenzhen. The lockdown in the city can also mean broader supply-side snarls. — AP
THE sell-off in the global oil market might bring a sense of relief to Asia’s policy makers: So this isn't 1973, after all. Back then, prices almost quadrupled in three months and then just kept rising. This time around, Brent crude zoomed to about US$128 (RM537) a barrel, but fell equally dramatically. Speculative bets on a renewed surge are unwinding – as prices bob around the US$100 (RM420)-a-barrel range. Yet, policy makers and investors shouldn’t be too complacent. Even if the benchmark this year doesn’t hit the US$200 (RM841)-mark that commodities trader Pierre Andurand sees as possible, oil can be a potent instrument of stagflation.
For starters, as economists at Australia & New Zealand Banking Group Ltd point out, government budgets in South-East Asia and India have assumed an average oil price of between US$65 and US$75 (RM273 and RM315) a barrel for the year, a lot lower than where the market is now. Malaysia and Indonesia, which are net energy exporters, will find it relatively easier to subsidise pump prices. Net importers, however, may struggle to be as generous, for they may need to cut back on developmental spending.
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