Asia faces higher oil price burden


Iraq's oil reserves make it a key member of OPEC

SINGAPORE (CNN) -- Higher oil prices because of the Middle East crisis will hit Asia harder than anywhere else this year, a regional oil expert warned Tuesday.

John Driscoll, Singapore-based general manager of the independent oil and gas price reporter Petroleum Argus, told CNN oil prices would likely go as high as $30 a barrel this year.

"I predict before the year is out we'll see $30 a barrel," he said.

The price of oil has jumped more than 35 percent since mid-January, and touched $27 Monday on the New York Mercantile Exchange before settling at $26.88.

It was the first time in six months the crude oil price has breached the $27 mark, and reflects mounting anxiety that the escalating violence in the Middle East could lead to a disruption of supply.

That disruption could include members of the Organization of Petroleum Exporting Countries (OPEC) choosing to restrict supplies.

Iraq factor

Along with the worsening of the conflict between Israel and the Palestinians, the possibility of U.S. military action against Saddam Hussein's government in Iraq is seen as another destabilizing factor.

In a statement published in Baghdad media Monday, Iraq's ruling Baath party called on Arab states to "use oil as a weapon in the battle with the enemy", Reuters news agency reported.

While moderate Arab states are viewed as unlikely to heed this call, Driscoll told CNN Tuesday that "hawkish sentiment" could re-emerge among the OPEC members.

This week's price rise also reflects signs of a turnaround in the U.S. economy, with the Institute of Supply Management reporting Monday a second straight gain in manufacturing activity in March.

Driscoll said any price rise would increase Asia's oil bill, threatening to derail the signs of economic recovery in the region after the global downturn of 2000-01.

He said the impact of the price increases stemming from the Middle East violence would hit Asia harder than anywhere else.

Asia accounts for about 28 percent of the world's oil consumption, and oil makes up more than a third of its total energy needs. It imports about 60 percent of its oil.

Japan, the world's second largest economy, relies heavily on the Middle East for its oil supplies, as does South Korea.