Rising Oil Prices and Their Impact on Hong Kong
Residents of Hong Kong may soon experience the effects of the escalating conflict in the Middle East, as global oil prices continue to rise. Analysts suggest that this could lead to higher energy bills and increased dining costs in the coming months. The ongoing tensions between the United States, Israel, and Iran have not only caused regional instability but also influenced global financial markets.
As military operations in the Middle East entered their fourth day, global oil prices continued to climb. Major financial institutions such as Goldman Sachs and Barclays have revised their forecasts, with Brent crude potentially reaching the $100-per-barrel mark if tensions escalate further. This development has raised concerns about the economic implications for Hong Kong, particularly in terms of inflation and utility costs.
Despite the volatility in global energy markets, experts believe that the spillover effect on Hong Kong’s Consumer Price Index (CPI) might remain contained in the near term. However, utility costs and restaurant prices are under increased pressure. Billy Mak Sui-choi, an associate professor at Baptist University’s department of accountancy, economics and finance, noted that while the largest components of Hong Kong’s CPI—private housing rents and food costs—are not directly linked to crude oil, the city cannot remain entirely unaffected by global inflation trends.
Mak, a former member of the Energy Advisory Committee, warned that if global inflation rises, Hong Kong would not be able to stand alone. He referenced the Russia-Ukraine conflict, where natural gas prices surged significantly. For a city like Hong Kong, which relies heavily on imported energy, the impact is substantial. If oil and gas prices continue to rise, fuel adjustment charges in residents’ electricity bills are expected to increase over the next three months.
Mak predicted that HK Electric, which supplies Hong Kong Island and several outlying islands, may impose higher charges than CLP Power, which serves Kowloon, the New Territories, and Lantau Island. Since HK Electric’s generation mix uses more natural gas than CLP, its customers may bear higher costs.
The catering industry is also bracing for the impact. Simon Wong Kit-lung, chairman of the Energy Advisory Committee and executive director of LH Group, mentioned that while oil prices spiked immediately after the war broke out, they have since begun to stabilize. He suggested that if the increase remains slight, the actual impact may not be large, and most restaurants may not need to consider raising prices at this stage. However, he added that if the situation escalates to affect general livelihoods, power companies and the government may need to implement other measures to support the industry.
Mak recalled that during the Russia-Ukraine conflict, local restaurants typically raised prices by HK$1 to HK$3 to offset higher energy costs. He noted that while energy is not the largest expense for most catering outlets, high-consumption venues such as Chinese banquet halls would feel the impact more acutely than smaller eateries.
However, Mak emphasized that oil prices exceeded $140 a barrel in 2022 when Russia invaded Ukraine—double the current level of about $70. “Even if oil reaches $100, it is still far from the historic peak. I don’t think we should be so pessimistic as to say it’s completely unbearable,” he said.
Both CLP Power and HK Electric announced tariff reductions last November, effective from the start of this year. CLP lowered its net tariff by 2.6 per cent, while HK Electric reduced its rate by 2.2 per cent. CLP Power stated that its diversified fuel mix, including nuclear power supplied from mainland China, would serve as a buffer. HK Electric mentioned that it would ensure a reliable fuel supply for power generation through prudent fuel procurement, as international fuel prices were likely to remain unstable while geopolitical tensions persist.
Hong Kong and China Gas Company noted that its reliance on natural gas and naphtha sourced mainly from Australia and Southeast Asia made its supply chain “generally less exposed to the immediate impacts of regional conflicts in the Middle East.”
The energy shock is also expected to complicate the global interest rate outlook. Market data from the CME FedWatch tool shows that expectations of a March rate cut have disappeared, with the US federal funds rate forecast to hold steady at 3.5 to 3.75 per cent. Raymond Yeung, Greater China chief economist at ANZ, stated that the US Federal Reserve would prioritize containing inflation over cutting rates. “I don’t think the US President wants interest rates to go up right now… Unless inflation bounces back to 4 per cent or 5 per cent, the Fed will not consider reversing course to hike rates,” he said.
Martin Wong, senior director at Knight Frank, suggested that tensions in the Middle East could have a psychological impact on the property market, particularly the secondary sector. However, he indicated that “hot money seeking a safe haven” could flow into Hong Kong, helping to stabilize prices. Derek Chan Hoi-chiu, head of research at Ricacorp, adjusted his earlier bullish outlook, stating that without the war, housing prices could have risen by 15 per cent this year. With the conflict, that rise may be limited to 10 per cent.
