Pricier oil clouds economic outlookAgainst a backdrop of growing tensions in the Middle East, the rising price of oil presents an increasing threat to Korea’s economic outlook.
Dubai oil, which accounts for a significant share of Korea’s imports, closed $0.72 higher Friday to reach $102.45 per barrel. Even Brent oil added $2.57 to close at $109.33 per barrel. And West Texas Intermediate jumped by more than $4 to close at $91.36.
Last week, the U.S. government tightened sanctions against Iran in a continuing effort to force Tehran to give up its nuclear program.
Iran is estimated to have lost $133 million a day in oil sales because of the U.S.-led sanctions, according to Bloomberg. That would translate to an annual loss of $48 billion, or about 10 percent of Iran’s GDP. Iran is OPEC’s third-largest producer.
Favorable employment news from the United States also caused upward pressure on oil prices. U.S. employers added a better-than-expected 163,000 jobs in July.
A few days later, the Korean government announced that consumer prices in July grew 1.5 percent on-year, a sharp decline from the 4 percent increase in 2011.
Inflationary pressure has been easing in recent months as the global economy has been losing steam amid concerns over the crisis in the euro zone. As a result, crude demand has fallen sharply.
However, rising oil prices could fuel inflation and put more pressure on consumers already struggling to pay their bills.
Already there have been signs of higher consumer prices this month with the heat wave in Korea slowly pushing up the cost of fresh produce.
That is bad news for a government that has been trying to contain consumer price growth to between 2 and 4 percent.
The Bank of Korea in May estimated that when the international price of oil rises 10 percent, consumer prices go up 0.19 percentage points and gross domestic product falls 0.1 percentage points.
The increase in oil price is expected to be a heavy blow for major exporters that sell products such as automobiles, electronic equipment and IT.
“The impact that the rising oil price will have on major industries will only get more severe once it becomes extensive,” said a BOK official. “Therefore, it is important to approach the rising oil prices accordingly.”
By Lee Ho-jeong [firstname.lastname@example.org]
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