Asia most vulnerable to oil price rise, prolonged West Asia conflict to influence region’s macro outlook: Invesco report

A prolonged geopolitical shock that disrupts Gulf exports could materially influence the region’s macro outlook, it has asserted.”A sustained move higher in oil prices would be negative for stocks, including Asian stocks,” it said.

Conversely, if the conflict ends relatively quickly, any negative impact on stocks will likely be short-lived.”Asia remains the most vulnerable region globally to sustained increases in oil prices due to its heavy reliance on imported energy and high trade openness.”

While geopolitical outcomes are impossible to predict, it is predicted that sustained geopolitical tensions would pose downside risks to Asia’s overall economy.

“If supply-side disruptions trigger prolonged oil price spikes, the region may face weaker growth and heightened macro-stability concerns. The duration and persistence of elevated oil prices will be the key determinant of the overall economic impact. On the impact of higher oil prices, while I expect higher oil prices to increase the upside risk to the inflation outlook for large energy importers such as Korea and Taiwan, I do not expect these central banks to react to the potential inflation threat as they will likely downplay supply-driven inflation pressures.”

“Higher oil prices are a negative terms-of-trade shock for Asia, but with local fuel prices often regulated, the impact on growth and inflation should be manageable. Instead, a higher oil import bill is likely to place a higher fiscal burden on Asian budgets,” it has opined.In Asia, Thailand, India, Korea and the Philippines are the most vulnerable to higher oil prices, due to their high import dependence, while Malaysia would be a relative beneficiary since it is an energy exporter.

Because of this, the Indian rupee and Korean won are likely to face near-term headwinds, the Invesco report noted.