High oil prices are bad for Asian economies that rely on imported oil, among them China, Japan, India, South Korea, Thailand, the Philippines, Hong Kong, Taiwan, Singapore and, increasingly, Indonesia. They fuel inflation, discontent, hardship and, in some places, instability.
However, these obvious problems 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. How does this 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 US. 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 this year importing crude oil and refined products. About half of this money will go to Gulf producers.
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 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 EU. Its surpluses with both have grown even larger since then.
These 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. The International Monetary Fund has found that, since 2000, the number of these government funds has 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 trends continue, sovereign wealth funds could control assets worth as much as US$12 trillion by 2015.
