Chennai: Every 10 per cent increase in oil prices that persists for a year results in a 40 basis point increase in global headline inflation and a 0.1–0.2 per cent fall in global output, finds the IMF. Both the IMF and UNCTAD find that the disruptions in the Strait of Hormuz will affect Asia the most and put developing countries under pressure.
If the new conflict proves prolonged, it has clear and obvious potential to affect market sentiment, growth, and inflation, placing new demands on policymakers, finds the IMF.
Every 10 per cent increase in oil prices, if it is persistent through most of this year, results in a 40 basis point increase in global headline inflation and a 0.1–0.2 per cent fall in global output.
About a fifth of global oil supply and LNG trade normally transits through the Strait of Hormuz. This includes almost half of Asia’s oil imports and about one-quarter of its LNG imports.
“For much of Asia and the world, energy security has shot up the list of concerns. If the new conflict proves prolonged, it has clear and obvious potential to affect market sentiment, growth, and inflation, placing new demands on policymakers,” it said.
UNCTAD too finds that disruptions in the strait compromise energy supplies, particularly to Asia. Asia accounts for 84 per cent of 14.3 million barrels of crude per day and 83 per cent of 10.4 billion cubic feet of LNG per day transported through the strait.
Further, one-third of global seaborne trade in fertilizers passes through the strait. Freight costs for shipping oil are soaring to historic highs. War risk insurance premiums have surged 300 per cent, adding to the shipping cost.
Higher energy, fertilizer and transport costs – including freight rates, bunker fuel prices and insurance premiums – may increase food costs and intensify cost-of-living pressures, particularly for the most vulnerable.
Many developing countries already face high debt service burdens, limited fiscal space and constrained access to finance. In this context, rising energy, transport and food costs could strain public finances and increase pressure on household budgets, potentially heightening economic and social pressures and complicating progress toward sustainable development, particularly in economies heavily dependent on imported energy, fertilizers and staple foods.
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