KEY POINTS:
High oil prices are bad for Asia-Pacific economies that rely on imported fuel. They stoke inflation, discontent, hardship and, in some places, instability. Never more so than now when the price of oil has nearly doubled in the past year and governments in the region are battling to keep staple food costs at affordable levels.
Among economies that depend on imported oil are New Zealand, Australia, China, Japan, India, South Korea, Thailand, the Philippines, Hong Kong, Taiwan, Singapore and, increasingly, Indonesia, which until recently exported more oil than it bought from overseas.
However, the problems caused by the increasingly high cost of oil shipped mainly from the Middle East conceal a tectonic shift taking place in the global economy. Asia's dependence on the oil-rich Persian Gulf is contributing to the massive transfer of wealth, influence and power from the West to Asia and leading Gulf energy exporters.
New Zealand and Australia are also hurt by rising inflation. But they do not gain Asia's compensating benefits because both countries in recent years have been spending far more than they earn and have not been able to amass large amounts of surplus foreign exchange for investment.
For example, recent figures show that New Zealand had a trade deficit of $4.53 billion, or nearly 12 per cent of exports, in the year to March.
How does the symbiotic relationship between Asian traders and Middle East oil producers work? Asia spends many tens of billions of dollars each year on oil from the Gulf. Take China - it was a net oil exporter as recently as 1993, but now has to import about half the oil it uses and has become the second largest oil consumer in the world, after the United States.
If the price of oil stays close to, or above, US$100 per barrel as forecast and demand for oil in China remains strong, Beijing will have to spend well over US$100 billion ($129.3 billion) this year importing crude oil and refined products. About half this money will go to Gulf producers because around half of Chinese oil imports are from the Middle East, defined as the Gulf oil exporters plus Oman and Yemen.
Japan's Gulf oil bill will be even bigger, since nearly 90 per cent of Japanese oil comes from the Middle East. But as with other Asian oil importers that rely on the Gulf, this oil powers the manufacturing export industries and transport networks that enable leading Asian economies like China and Japan to amass huge surpluses in their trade with the European Union and the US.
For example, while China may have paid around US$30 billion for Middle East oil in 2006 before the latest phase of the oil price surge, it amassed a merchandise trade surplus worth almost US$145 billion with the US in that year and a surplus of nearly US$100 billion with the European Union.
Accumulated over years, these foreign exchange surpluses from oil in the Gulf and manufacturing trade in Asia are swelling the coffers of Gulf and Asian sovereign wealth funds that are buying substantial chunks of distressed US and European banks, as well as significant holdings in a wide range of other Western companies. These government funds may well become increasingly interested in Australia and New Zealand as they search for profitable investments. The International Monetary Fund has found that since 2000, the number of sovereign wealth funds has nearly doubled from 20 to 40, managing assets with an estimated value of between US$1.9 trillion and US$2.9 trillion.
Many of the wealthiest and most active of the funds are in Asia and the Gulf. They want to improve returns on their holdings. Morgan Stanley has forecast that if global growth and market expansion continue, sovereign wealth funds could control assets worth as much as US$12 trillion by 2015.
Much of their investment is expected to flow to Asia as its powerhouse role in the world economy increases provided, of course, that oil inflation, food shortages, a slowdown in the West, and a general strengthening of Asian currencies against the US dollar do not knock the region's export-led growth off course.
Singapore's minister mentor Lee Kuan Yew noted in a column he wrote for Forbes Asia magazine that Asia is expected to produce 50 per cent of the world's GDP by 2030, regaining the position it held at the start of the 19th century, when China and India produced more than one-third of global income.
Trade between Asia and the Middle East is booming as Asian economies sell manufactured goods to the region and buy oil and natural gas in return.
Millions of Asians work in the Persian Gulf and Middle East investors are starting to redirect more of their wealth to Asia instead of the West.
* The writer, a former Asia editor of the International Herald Tribune, is an energy and security specialist at the Institute of South East Asian Studies in Singapore.
