How Does the Oil Price Decline Affect Southeast Asia?

Abstract

Crude oil prices dipped below the USD50 per barrel psychological benchmark on Monday, 5 January 2015. Only six months earlier, in July 2014, crude oil prices were hovering around USD110 per barrel (Figure 1). The steep decline in oil prices of about 50 percent, whilst not unprecedented, was totally unexpected. The last time oil prices dipped significantly was in 2009 in the aftermath of the global financial crisis. Back then, the world economy contracted by two percent. In contrast, the world economy grew by 2.6 percent in 2014. The slump in oil prices is primarily driven by excess supply and weak demand in the oil market. As the slump in oil prices was totally unexpected before the end of 2014, it is safe to say that policymakers will need to go back to the drawing board to chart new policy directions for the coming year (at least). This essay examines how the economies of Southeast Asia are affected by the steep decline in oil prices.