Economists Warn Higher Oil Prices Will Worsen Asia's Food Inflation

Global oil prices have spiked in recent days in response to political instability in the Middle East and North Africa.

Asia's export-driven economies, dependent on imported oil, are bracing for higher inflation as global oil price tops $100 a barrel.

Aynul Hasan, a senior economist at the United Nations Economic and Social Commission Asia Pacific, says oil prices now depend on how the political turmoil unfolds in the Middle East.

"High oil prices very much depend on how soon things will settle down," Hasan explained. "Obviously in this uncertainty there will be short-term disruption. Many countries have the buffer stock which can carry on for a few weeks. But if this carries on for longer, then definitely this will have an impact. Let's hope that this is not the case."

Hasan says oil costs could accelerate the rise in food prices, caused by poor crops in some areas and rising demand in many countries.

The World Bank has warned that food prices are dangerously high and seem set to continue rising. The higher prices already are affecting millions of Asia's poor. World Bank and UNESCAP economists predict more people will fall into poverty due to higher food costs in the coming year.

Supavud Saicheua, an economist with Thai stock brokering house Phatra Securities, says Asia's economic growth - largely dependent on exports - is vulnerable to sharp increases in oil prices.

"If you argue that the high oil price is primarily supply shock because of concern about Libya and other oil producing countries unable to produce, then that's very bad because if you have global slowdown and high oil prices then, it will hit Thailand and the rest of the region very hard," said Saicheua.

Most Asian countries are net importers of oil, including the manufacturing powerhouse China.

In July 2007, the aviation industry was hard hit when oil prices reached a record $147 a barrel. Then the global economic slump in 2008 led to sharp declines in passenger traffic and more losses for the industry. Airline shares have fallen in recent days as investors feared aviation profits may soon drop again.

Supavud says the oil commodity futures market expects at least six months of uncertainty before the market returns to normal.

World oil demand amounts to around 90 million barrels a day. Libya contributes about one million barrels.

Higher food prices and poor economic conditions have contributed the discontent of many of the protesters across the Middle East. In East Asia, many governments are on the watch for inflation and have taken steps such as raising interest rates and curtailing capital inflows to tamp it down.