Traders gesture in the oil futures pit at the New York Mercantile Exchange in New York on Wednesday. Crude oil prices soared to $100 a barrel Wednesday for the first time, reaching that milestone amid an unshakeable view that global demand for oil and petroleum products will outstrip supplies./AP

On Wednesday, the first business day of the New Year, the price of West Texas Intermediate February shipment momentarily touched $100 per barrel on the New York Mercantile Exchange, up $4.02 or 4.2 percent from the closing price on Dec. 31.

High oil prices, high commodity prices and high interest rates could mire Korea's economy in low growth. In that case, households already burdened with debts of W600 trillion (US$1=W937) could see a further reduction in real income, fewer jobs and increased interest payments. They would also put a heavy strain on macroeconomic management by the new government, which has been elected by a landslide on a pledge to revive the economy.

◆ Oil prices the heaviest burden

According to analysis by the Samsung Economic Research Institute, if the annual average price of oil rises 10 percent year-on-year, the economic growth rate will drop 0.35 points. Considering that the average import price of the Dubai crude was $68 per barrel last year, this year's growth rate might drop more than 1 percentage point if the price hovers at the $90-100 range. The falling growth rate will result in fewer jobs.

The high oil price would also reduce domestic consumption in the U.S., the world's economic growth engine, which in turn would adversely affect the upswing in Korea's exports that has so far buttressed the country's economy. The soaring oil price would also prompt a rise in commodity prices, which particularly affects low-income earners -- and shake the foundation of president elect Lee Myung-bak's pledge to cut the cost of living by 30 percent.

An official with the Korea National Oil Corporation looks at the oil price graph in a conference room in their main office in Anyang, Gyeonggi Province on Thursday.

The prospect of rising commodity prices caused by soaring oil prices already started to put pressure on the national economy in the second half of 2007. Consumer prices increase 3.6 percent increase in December year-on-year, an all-time high since October 2004. If the oil prices remain high, nobody can rule out that the price increase rate will exceed the 4 percent mark this year. At the National Assembly last year, Bank of Korea Governor Lee Seong-tae said, "If the oil price hovers at the $90 range per barrel, consumer prices will rise 0.45 percentage points." Besides, the international grain price might increase additionally in the wake of the Chinese government's decision to restrict exports of Chinese grain beginning this year.

Lee Jee-hoon, a senior economist at the Samsung Economic Research Institute, said, "The rise in prices of international raw materials, including oil, will give a heavy burden to the government in its economic management, as it will lead to rise in prices of imported goods, cause unease about commodity prices, and have adverse effects on the trade balance. The new government must urgently implement its plan to slash oil taxes by 10 percent in order to absorb the shock."

◆ Oil prices likely to stay high

Views are split over the prospects for future oil prices. Many experts predict that the oil price will most likely drop below $100 per barrel in the short term, as the global economy will slow and demand decrease, with the U.S. economy showing signs of recession. But the prevailing view is that the oil price will continue to rise in the long term, considering that there are very few new oil fields explored, but newly developing nations such as China, India, Russia and Brazil keep consuming a lot of crude to stoke their rapid growth. Even oil-producing countries in the Middle East have started to import oil, as they are seeking economic development based on petrodollars.

Korean oil experts predict that the oil prices will keep soaring in the first half of this year, given that there is little chance that the supply of crude oil will improve anytime soon. Many forecast that the oil price will stabilize to some extent in the second half, as the weakening of the U.S. dollar is expected to slow. Lee Moon-bae, a senior research fellow at the Korea Energy Economics Institute, said, "It seems that the international oil prices will stabilize to some extent in the second half, when the U.S. subprime mortgage crisis is brought under control."

(englishnews@chosun.com )