The year got off to a rough start on international financial markets when a barrel of crude hit the watershed level of US$100 (S$143) a barrel in New York on Wednesday, pressured by a weakening US dollar and a raft of geo-political worries.

It was trading slightly below the record level in New York yesterday, hovering at around US$99.22 a barrel.

Policy responses from governments across Asia to the crude prices flirting with the psychologically important level of US$100 a barrel varied considerably.

Retail fuel prices appear set to rise in the Philippines, India and Thailand. But, for a mix of reasons, prices in China, Indonesia, Taiwan and Malaysia look unlikely to budge, at least for the time being.

The fallout of expensive oil - prices have risen fivefold since 2002 - is putting a heavy strain on governments subsidising fuel prices. But higher retail prices can spur inflation and are a political tinderbox in some countries.

The record oil price will add to the policy headaches of Beijing, which is struggling to introduce much-needed pricing reforms in the energy sector - and rein in inflation that has hit an 11-year high of close to 7 per cent.

In the short-term, consumers will be likely to remain insulated, given Beijing's fears that higher pump prices will further kindle inflation.

As things stand, price caps on fuel increases mean that motorists and businesses in China pay only about US$50 a barrel for petrol and diesel, say market analysts.

But further delays in energy-pricing reforms could hurt Beijing's efforts to encourage energy conservation and boost efficiency.

With chances of an early election dimming in India, which imports 70 per cent of its fuel requirement, the government seems to be leaning towards a modest increase in fuel prices to help cut the enormous cost of subsidising oil marketing companies.

Oil Minister Murli Deora told reporters that he has been in talks with the government's communist allies to seek their approval for raising prices.

And with inflation around a manageable 5 per cent, the government appears to have some leeway for a limited increase in pump prices, last raised 18 months ago.

'The government will get into election mode with the budget due at the end of February,' said a senior government official in New Delhi. 'Until that time, it has a bit of margin to follow some sensible policies.'

South Korea, the world's fourth largest oil importer, is bracing itself for rising inflation and lower economic growth from rising oil prices.

'The economy will face difficulties,' acknowledged Deputy Prime Minister Kwon Oh Kyu on Thursday.

With a presidential election in March, Taiwan's government is unlikely to raise oil prices because of concerns that such an unpopular move would hurt its chances in the polls, say analysts.

Malaysia, which has one of the region's lowest fuel prices, has said it will hold prices for as long as it can although this will take a serious toll on its fuel subsidy bill.

At RM40 billion (S$18 billion), this is roughly equal to the country's entire development spending.

'If we can continue to maintain the price, we certainly will, but we are closely monitoring the situation,' Prime Minister Abdullah Badawi was quoted as saying by a newspaper earlier this week.

The Asian Development Bank, for one, has raised concerns over the 'stress' that fuel subsidies are putting on government finances in some developing economies.

Indonesia's budget envisaged oil prices averaging only US$60 a barrel this year - an assumption which some fear could throw the government's economic plan for this year into disarray.

However, the government has ruled out reducing fuel subsidies to relieve pressure on the budget.

On the flip side, Indonesia is also an oil producer, although it has been a net importer of crude for the past four years.

There are no fuel subsidies in the Philippines, and the country's strong currency - thanks mainly to the flood of foreign exchange several million Filipinos working overseas send home every year - has cushioned the impact of buying imported crude, which is priced in US dollars.

Thailand plans to allow bus and taxi fares to rise after delaying permission for several weeks. The retail price of fuel, allowed to free-float, is set to rise further.

Thai officials acknowledge that it will be difficult to contain inflation - targeted at 3 cent to 4 per cent this year.

Despite the hardships, analysts note that oil prices have risen amid a global boom - and the region's economies have so far been resilient.

Compared to the oil-price shocks of the 1970s, businesses are now far more fuel efficient while governments have tried to reduce their dependence on imported crude, the Associated Press reported analysts as saying.

amcindoe@yahoo.com

Reporting by Azhar Ghani in Jakarta, Carolyn Hong in Kuala Lumpur, Chua Chin Hon in Beijing, Lee Tee Jong in Seoul, Nirmal Ghosh in Bangkok, Ong Hwee Hwee in Taipei and Ravi Velloor in New Delhi