Oil shock potential spoiler for South-east Asia's growth narrative

CRUDE oil's demand shock, triggered in 2020 by the pandemic as prices sank below zero for the first time in history, is reversing into a supply shock owing to a multitude of factors, chiefly the Russia-Ukraine conflict, deemed the greatest security crisis since the Cold War.

Apart from the geopolitical tensions that risk materially disrupting Russian oil supply (tensions eased somewhat over the weekend with the parties showing willingness to hold a summit), crude prices have hit near record levels due to extraordinary demand as global economic activities rebound. The commodity's prices are expected to remain elevated given the "chronic struggle" by the Organization of the Petroleum Exporting Countries (OPEC) and allies (dubbed OPEC+ ) to meet output targets, in part due to under-investments.

While the oil sector has been one of bust and boom cycles - the last crash was in 2020, even as oil had not fully recovered from the 2014 slump - the sharp spike in prices of late is unfolding at a tricky time. Two years after a deep recession owing to the Covid-19 pandemic, the era of easy money is coming undone as central banks turn hawkish sooner than expected.