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Will high oil prices could squelch the recovery?
How high oil prices could squelch the recovery - WaPoAs my colleague Steven Mufson reports today, tensions with Iran are putting upward pressure on crude prices and oil was already at a record high in 2011. Analysts are now fretting that oil could kneecap the fragile recovery. So is there a good way of estimating the effects of pricier oil?
The Strait of Hormuz, where all the excitement is taking place. (MARWAN NAAMANI/AFP) Yes. According to a U.S. Energy Information Administration analysis, a $20 increase in the cost of a barrel of oil roughly what we saw last year is estimated to shave about 0.4 points off GDP growth in the first year alone and boost unemployment by 0.1 percentage points. So if Iran threatens to close the Strait of Hormuz (through which about 20 percent of the worlds oil flows) and prices start screaming upward from $107 per barrel to $120 or beyond, that would put a very noticeable dent in growth.
Whats more, oil shocks tend to have long-lingering effects. The EIA estimates that a $20 price increase would continue biting into the economy for at last another year thereafter. James Hamilton, an economist at the University of California, San Diego, has suggested that the consequences of a price spike can persist for several quarters, as the resulting slowdown in consumer spending takes some time to ripple through the economy. Thats true even if the spike is only temporary and recedes quickly.
Heres another way of looking at it: In 2011, the United States paid about $125 billion more for oil imports than it did in 2010 (thanks, in part, to the disruptions caused by civil war in Libya). That oil tax was essentially enough to wipe out the entire stimulative effects of Barack Obamas middle-class tax cut. A similar oil spike this year would cancel out a hefty chunk of the benefits of extending the $200 billion payroll tax cut bill that Congress is fighting over.
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Will high oil prices could squelch the recovery? (Original Post)
Bill USA
Jan 2012
OP
elehhhhna
(32,076 posts)1. fixyour headline please
and yes. bet on it.
Bill USA
(6,436 posts)3. that's my headline - notice I didn't refer to WaPo in hdlne as i did in link.
and yes, very likely they will. That's why we should be pushing every technique and technology available to us to reduce our consumption of oil. Support public transit, renewable, alternative fuels, greater efficiency in automobiles (ok were doing that - but more could be done).
DJ13
(23,671 posts)2. The record oil prices helped to put us into the recession
The next round coming when the worlds economies are so fragile could put us into a depression.
MindMover
(5,016 posts)4. Not high oil prices you will have to worry about soon enough......rather low oil prices......