GLOBAL OIL PRICE RISE AND ITS FALLOUT ON SOUTH ASIA

This article analyses the late-2000s global oil price surge and its macroeconomic transmission in South Asia. It quantifies pass-through to inflation, current-account balances and fiscal pressures created by fuel subsidies. The study compares policy mixes—administered price adjustments, targeted cash transfers, tax tuning and exchange-rate management—and evaluates their distributional and political economy consequences. It discusses the corporate and household energy-use response, power-sector knock-ons, and how high oil prices reshaped incentives for natural gas, coal, renewables and regional power trade. The paper argues for transparent price formulas, better social protection delivery, and accelerated efficiency standards to cushion shocks while preserving investment signals. It concludes with a resilience agenda that links energy security to macro stability.

The body first sets the global context of demand growth, financialisation of commodities and spare capacity constraints. Section One traces inflation dynamics via fuel and fertilizer channels, decomposing headline CPI in selected South Asian economies. Section Two examines fiscal choices: the cost of universal subsidies, timing and design of price pass-through, and the use of hedging or stabilization funds. Section Three evaluates balance-of-payments impacts, oil import financing and the role of remittances as a shock absorber. Section Four explores sectoral adjustments—transport modal shifts, industrial fuel-switching, and utility tariff reforms—while considering political feasibility. Section Five outlines long-run responses: fuel-economy standards, efficient appliances, urban planning that reduces vehicle kilometres, and cross-border electricity trade to diversify away from oil-linked generation. The conclusion proposes a policy package that protects the poor, maintains investment credibility and builds buffers before the next price spike.