Asia's Economies Face Fresh Test as Oil Prices Surge Above $100

Asia's economies are facing a fresh test of resilience as oil prices surge above $100 per barrel for the second time this year, driven by tensions in the Strait of Hormuz.

Policymakers across the region will have to balance cushioning households and businesses from inflation with their already tight fiscal and monetary policies. Brent oil spiked over $107 a barrel on Friday amid an uptick in attacks in the Strait of Hormuz, which has been a major concern for countries relying heavily on imported crude.

Japan, South Korea, and India are among the economies that will feel the pinch of higher fuel prices, while Indonesia and Thailand will have to increase their subsidy bills. The Bank of Japan is expected to hike its policy rate next week, and the Reserve Bank of Australia has already signaled it's ready to tighten ahead of its rate-setting meeting later this month.

With budget deficits already bloated and interest rates high, policymakers in Asia have limited room for maneuver. 'Surging oil prices brought terms of trade, inflation, and medium-term fiscal concerns back into play,' said Wee Khoon Chong, senior market strategist for Asia Pacific at BNY in Hong Kong.