American bank Goldman Sachs jolted many an investor, politician and man behind the wheel earlier this year when it predicted that oil could jump to $105 a barrel as demand from economies such as China and India soared.
When Goldman analysts wrote the report late in March, New York oil futures were trading just above $50 per barrel. This month, they surged to a new record over $67, up 60 percent this year and more than double the price traded two years ago.
The galloping prices have forced governments to cut fuel subsidies in a bid to shield their budgets, boosted costs for businesses and raised questions that many were hoping would not have to be posed: Can Asia sustain its growth with oil at $70?
And can Asian consumers, with incomes a fraction of those in the developed world, afford items such as cars, air-conditioners and washing machines when fuel costs rise and central banks are raising interest rates?
"I believe in downward sloped demand curves so I do expect the demand for cars, air-conditioners, etc to fall with the rise in the price of energy," said Arvind Panagariya, an economics professor at Columbia University and a former chief economist at the Asian Development Bank. Higher incomes would offset this to some extent, but in the near term Panagariya concluded Asia is either going to see larger fiscal deficits - if governments keep subsidising energy costs - or consumers have to prepare for even higher energy prices.
There are clear signs that Asia's policymakers are already choosing to protect their budgets from the impact of oil prices, making fuels costlier and dampening overall demand, and growth.
China has used blunt tools such as energy rationing to curb consumption. In Thailand, the government ended diesel subsidies leading to a 16 percent drop in demand in July from a month earlier. Petrol demand is already down 7 percent this year.
Indonesia's state oil company, Pertamina, said this week it plans to raise diesel prices for some industries in September for the fourth time in half a year as it passes through higher oil costs. The government raised fuel prices by 30 percent in March.
Asia's vulnerability to high oil prices is not surprising.
Although the United States remains by far the world's largest oil consumer, guzzling a quarter of the world's daily usage of 81 million barrels, demand in Asia has surged more than a third in the past decade, faster than any other region.
Asia consumes 30 percent of the world's oil but produces only a tenth of the fuel, leaving it to import two-thirds of its needs mainly from the politically volatile Middle East. China and Japan are the world's second- and third-largest oil consumers.
In a recent report, Goldman Sachs said most Asian economies were holding up better against the current spurt in oil prices than during the 1970s oil shock, partly because the latest surge was caused by stronger demand rather than by supply disruptions. Moreover, Asia is now more efficient than it used to be, using less oil to produce each unit of goods. Finally, record low interest rates are providing a buffer for consumers against higher oil prices.
"Having said that, we remain mindful of the risk that the adverse impact of oil prices is non-linear (ie accelerates) beyond some threshold price level," wrote Goldman economist Sun-bae Kim. Asia may be close to that threshold.
Several Asian governments have cut their growth estimates by a percentage point or higher since the start of the year as surging energy costs drill a hole into consumers' pockets.
Deutsche Bank currency strategists Mirza Baig and James Malcolm worked out the direct impact on Asia this year from an average 25 percent rise in brent crude oil prices to $50 a barrel. Brent crude has averaged $52 a barrel so far this year.
Their study showed such a rise could shave 2.1 percent off Thailand's economic growth, 1.5 percent from the growth forecasts for South Korea and the Philippines and about 1 percent from that for Indonesia, Taiwan and India.
Malaysia, the region's only net oil exporter, and Japan, the region's most efficient energy user, are likely to be the least affected by the soaring oil prices, the strategists said.
Swiss bank UBS does not share Goldman's oil price prognosis. Underlying supply and demand for oil suggests that the price should be in the range of $40 to $45, it said. "If oil prices stay near $70 on a sustained basis, this implies a significant further rise in producer and consumer prices in Asia, which would certainly mean some kind of demand response as well," said UBS economist Jonathan Anderson.
"By our estimates, oil sustained at $70 through end-2006 would take Asian growth down by another 1.2 percentage point, ie more pain but not a disaster."