The consequences of sustained and rapid economic changes in Asia (particularly China and India) for international trade, labour, and financial markets have been recognized for some years. Recognition of their current and prospective effects on commodity markets has evolved more slowly, but those impacts are now seen as substantial. Energy is at the forefront of this attention, in part because cyclical and structural changes have contributed to the considerable uncertainties in energy markets, to which the 2008 financial crisis added substantially.
This chapter asks: How do uncertainties in the international energy market affect Asia? It is apparent that the way we perceived energy security in the past has changed. It now needs to be seen as a more serious global issue. As the chief economist of the International Energy Agency (IEA), Fatih Birol, has argued, “Rising global energy demand poses a real and growing threat to the world's energy security.”
In the short term, the financial and related economic fallout has affected energy markets. We are concerned here, however, primarily with the medium to long term in which energy market uncertainties revolve around future energy (notably oil) supply and demand, including potential oil supply adequacy, the sensitivity of oil demand to increasing prices, enhanced investment uncertainty, the changed role of the international oil companies, the increased importance of national oil companies, the role of the Organization of Petroleum Exporting Countries (OPEC), the impact of speculation, and the changing value of the American dollar. To these uncertainties are added environmental issues, notably climate change, and increasing overlaps with food supply and prices.
Even before these uncertainties emerged as significant factors, access to energy supplies had become a matter of high policy concern in most countries in Asia. Along with energy security concerns, predominantly about the physical accessibility to future energy supplies, have been more immediate regional concerns about rising prices and their impact on lower income sectors of national populations. Moreover, given the environmental and budgetary benefits of following market prices for oil, but also given the adverse inflationary and economic stability impacts of such policies and the effects on poverty and food production, countries now face difficult choices in managing the various policy options, even if that management has only a marginal influence on supply conditions. These interrelationships are especially important to Asian countries.
