Nomura said rising oil prices after the US-Israel strikes on Iran pose a negative terms-of-trade shock for Asia. Higher crude costs could widen current account deficits and raise fiscal burdens, with Thailand, India, South Korea and the Philippines seen as most vulnerable, while Malaysia may benefit.
Key highlights
- Every 10% rise in oil prices worsens Asia’s current account balance by ~0.3% of GDP
- Thailand, India, Korea and the Philippines most vulnerable; Malaysia seen as relative beneficiary
- Fiscal burden could increase by 0.1-0.2% of GDP per 10% oil price rise
Japanese brokerage Nomura Holdings has warned that rising oil prices following the recent US-Israel military operation against Iran could weigh on several Asian economies, citing higher import costs and fiscal pressure.
In its March 1 Asia Insights report, Nomura said Brent crude has climbed steadily since mid-January amid escalating geopolitical tensions. Brent closed just below $73 per barrel on Friday, compared with around $60 in early January, and is expected to trade roughly 9% higher, according to the report.
The price increase followed joint US-Israel airstrikes targeting Iranian military infrastructure and nuclear-linked facilities. Iran’s Supreme Leader was confirmed killed in the strikes, triggering missile and drone retaliation aimed at Israeli sites and US bases in Gulf states.
Import Bills Set to Rise Across Oil-Dependent Economies
Nomura said higher crude prices represent a negative “terms-of-trade” shock for Asia, meaning the region would pay more for imports relative to export earnings. On average, every 10% increase in oil prices could worsen Asia’s current account balance by about 0.3% of GDP.
Thailand, India, South Korea and the Philippines were identified as the most vulnerable due to their high net oil imports relative to GDP. Malaysia, by contrast, may benefit as a net energy exporter.
Fiscal Pressures and Inflation Risks
The brokerage estimates that for every 10% rise in oil prices, fiscal burdens could increase by 0.1% to 0.2% of GDP, especially in economies that use subsidies, price caps or tax adjustments to shield consumers from fuel cost increases.
While inflation pass-through may remain contained in countries with price controls, Nomura said the higher import bill would likely have a broader impact on current account balances.
Policy and Market Outlook
Nomura expects policymakers to rely primarily on fiscal measures such as fuel subsidies, excise duty cuts and price controls. Central banks are likely to remain cautious and keep interest rates steady unless oil-driven inflation spreads into broader goods and services.
The report also flagged potential volatility in Asian foreign exchange and bond markets, particularly in countries with high oil exposure, and noted that sustained crude price gains could weigh on regional equities.
Quick FAQs
Q1. How do higher oil prices affect Asia’s economy?
A 10% rise in oil prices worsens Asia’s current account balance by about 0.3% of GDP on average and raises fiscal burdens due to subsidies and tax measures, according to Nomura.
Q2. Which Asian countries are most exposed to rising oil prices?
Nomura identified Thailand, India, Korea and the Philippines as the most vulnerable due to high net oil import dependence, while Malaysia could benefit as a relative energy exporter.
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