Oil prices are up. Gasoline prices are up. Don’t blame Obama. Blame Asia.
Asia now accounts for at least 30% of world demand for oil. This is going to increase.
Now this rising demand is forcing Westerners to dig deeper into their wallets.
As Asia gets richer, Asians buy more cars. They build more factories. This requires oil.
The West is looking for substitutes: coal, natural gas, and nuclear. But the capital requirements are huge. The delay is years. But oil reacts sharply to any increase in demand. There are no reserves.
One thing can push oil’s price down: a recession.
“Just as the threat of a financial crisis has receded, the steep rise in oil prices in the first two months of 2012 has resurfaced as the greatest perceived threat to the outlook,” warned Nomura’s chief economic advisor, David Resler, in a note to clients.
Oil matters to Asia. The region is now the largest consumer of the commodity having surpassed North America in 2007 to account for more than 31 percent of world demand. Asia is home to four of the world’s 10 largest oil-consuming countries in China, Japan, India and South Korea.
Add to this the threat of war in Iran.
Back in January, the International Monetary Fund warned that a total shutdown of Iranian exports could trigger a price spike of as much as 30 percent.
That would mean oil soaring to around $160 per barrel, higher than the 2008 peak blamed for weakening the global economy just before Lehman Brothers’ bankruptcy sent it into a tailspin.
It is also particularly tricky for Asia in that China, India, Japan and South Korea are the four largest importers of Iranian oil.
If Asia booms, oil soars. If Asia goes into recession, oil falls, but so does the West’s economy.
We are now trapped in a cycle between boom and bust. Rising oil prices can undermine any recovery.