Arab News Japan
TOKYO: Despite slowing demand, fears are mounting in oil-hungry Asia that tensions in the Middle East will push oil prices past $100 per barrel, Nikkei Asia has reported.
There are fears that Israel may strike Iran’s oil infrastructure and even speculation that the conflict might close the Strait of Hormuz, through which 70 percent of Asia’s oil imports pass.
Before Iran’s recent missile attack on Israel, demand had been slowing, but after the attack Brent crude futures rose 8 percent, peaking at $81.16 on October 7.
Nikkei quoted NIIMURA Naohiro of Market Risk Advisory as saying that Brent could go up to $90 and even top $100 if there was a serious disruption of supply.
Iran accounts for about 3 percent of global production, according to data from the International Energy Agency. If Israel were to attack Iran’s facilities, crude supplies would be constrained and neighboring Kuwait and Iraq could also be affected.
The consequences would be much higher if the Strait of Hormuz were to be closed off, either intentionally by Iran or accidentally, as this is used by Saudi Arabia and the United Arab Emirates for crude shipments.
For now, with a slow Chinese economy, oil prices are relatively low. China is the world’s biggest importer of crude oil. The country’s economic growth is projected to slow from 5.2 percentin 2023 to 4.8 percent in 2024 and 4.5 percent in 2025, according to a recent survey of economists by Nikkei and Nikkei Quick News.
Major financial institutions expect oil prices to either remain at current levels or decline. Goldman Sachs expects Brent to trade in the $70 to $85 range with an average price of $77 for the last three months of this year and $76 for 2025.
In addition to the Middle East crisis, other factors that could affect oil prices include the ongoing Russia-Ukraine war and the outcome of the US presidential election. Attacks on Russian oil refineries amid the war in Ukraine have constrained the global supply. While many countries stopped buying Russian exports, China and India still import Russian oil.
In Japan, rising oil prices would increase costs for companies and consumers as prices of liquefied natural gas, coal and plastics would also rise, said UENO Tsuyoshi, senior economist at the NLI Research Institute.
As it begins to gradually shift its monetary policy, the Bank of Japan is studying data that might point to an improving economy and justify further raising interest rates. At the same time, the central bank would be wary if oil price hikes dent corporate profits and make it difficult for employers to raise wages, Ueno suggested.