As the Libyan uprising descends into civil war, and with unrest spreading to the energy-rich shiekhlets of the Persian Gulf, investors in Asia are once again fretting over the economic impact of a protracted rise in the price of oil.
It's a disturbing prospect. As the fighting in Libya has intensified, the price of benchmark Brent Blend crude has shot up to US$115 a barrel (please see the first chart below), bringing back nasty memories of the 2008 price spike that saw oil climb as high as US$145 a barrel.
The fear now is that the turmoil in Libya will drag on, preventing a speedy resumption of exports from the country's oil fields, which in 2009 pumped around 2 per cent of the world's total supply of crude.
Even worse, investors are afraid that more trouble will flare up in the tightly ruled monarchies of the Gulf. If unrest among the Shiite majority of Bahrain spreads to their cousins in Saudi Arabia's oil-producing eastern province, or if protests escalate in the Sultanate of Oman, which dominates the Straits of Hormuz from its bases in the strategically vital Musandam Peninsula, then the price of oil could easily surge back towards its 2008 highs.
For Asian economies, a prolonged rise in the price of crude would be a double blow.
First, with every country in the region except Malaysia and Vietnam dependent to some extent on oil imports, a rise in prices would eat into Asia's trade balances, weighing further on economic growth rates that are already set to slow this year.
Big importers like India and inefficient energy users like Thailand would be hardest hit. But even the region's energy-producers would not escape some economic pain. Malaysia and Indonesia, both of which have their own supplies of oil, also subsidise domestic fuel prices. If those subsidies are maintained at current levels despite a rise in international prices, their governments could suffer a deterioration in their finances they can ill-afford.
Of course, governments that offer fuel subsidies, which also include India and Thailand, could choose to pass the increase in crude prices on to their domestic consumers.
But that would push up rates of inflation, which are already running uncomfortably hot in many countries around the region.
According to estimates compiled by analysts at HSBC, an increase in the price of crude oil to US$130 a barrel, if fully passed on to consumers, would push Vietnam's rate of inflation up to more than 14 per cent. Inflation in India and Indonesia would climb to around 10 per cent.
In reality, the picture could be even worse. Because agriculture is energy-intensive and heavily dependent on petroleum-based fertilisers, a rise in the oil price typically pushes up food prices too, exacerbating the overall rise in consumer inflation. And that's before considering that higher oil prices boost demand for bio-fuels, whose production eats up agricultural land that would otherwise be devoted to food production.
Happily for Hong Kong, the impact of more expensive oil on local prices is muted, with an increase to US$130 a barrel only adding 1.1 percentage points to the inflation rate, according to HSBC's estimates.
On the mainland, a similar increase would drive inflation up to 6.4 per cent if passed on to consumers. But given that Beijing is already worried that inflation may spark social discontent, the government is likely to maintain strict price controls on fuel, letting the profits of China's domestic oil refiners take the pain. If experience is anything to go by, however, that could lead to hoarding and local fuel shortages, which could cause unrest anyway.
Clearly, a protracted increase in crude oil prices is an ugly prospect. Fortunately, however, it may not be as likely as some investors appear to believe.
Whatever government emerges from the current turmoil in Libya will have a strong incentive to resume oil exports as quickly as possible. And even if the crisis drags on longer than anyone expects, the world can do without Libyan oil for a considerable period. Saudi Arabia is currently producing a little over 8 million barrels a day, well below its estimated capacity of 11.5 million barrels. As a result, Riyadh is well placed to step up production to compensate for the Libyan shortfall on the global market.
Of course, if political unrest does spread to eastern Saudi provinces, disrupting the kingdom's oil exports, then the picture will be very different. Propelled by frantic activity in the futures markets, oil prices would soar above 2009's record high, probably staying above US$150 a barrel for as long as the trouble lasts. The world would be in a full-blown oil crisis.
At the moment there is little sign that is likely. But even so, the prospect is enough to unnerve many investors.
Expect a volatile time for the region's markets.