A sustained 10 percent increase in the price of oil can drain up to 0.1 percent off the U.S. economy. By this rule of thumb, recent petroleum price rises could cost the American GDP roughly $60 billion. This is far from a knockout punch to a $14 trillion economy. But it sets up the United States for a more lethal combination: higher interest rates and greater global instability.
The recent oil price jump could not have come at a worse time. U.S. energy prices had already risen 7.7 percent in December, 2010 compared with December, 2009. The situation is even more dire in the euro zone, where fuel prices were up 11 percent, according to figures released today by the Organization for Economic Cooperation and Development in Paris. If Middle East uncertainty fans even higher prices over the next few months, inflation hawks at the U.S. Federal Reserve and the European Central Bank could well prevail, leading to interest rate hikes that could slow transatlantic recovery.
It is the prospect of long-term Egyptian and Middle Eastern economic and thus political stability that is the best insurance against rising energy prices.
3 comments:
It seems as though we will be able to make it comforably through a small rise in oil prices. However, after the recent problems in Egypt there is a possibility of other countries going through the same changes that Egypt has. The United States needs to make sure that this does not spread throughout the Middle East and that large oil producing countries do not follow in the same foot steps as Egypt. If multiple countries have problems and oil prices are forced even higher then it seems as though the United States will be in a much more serious situation that will not allow us to come anywhere close to getting out of our recession.
Besides political stability, US should focus on alternative energy for oil, such as investing in environmental research and advancing technology. If it can create more energy-efficient inventions and encourage its people to purchase alternative energy, then oil won't be such a serious problem. For example, Japan is working on cars that run totally by water. Investing in alternative energy is investing in the more sustainable growth of our economy.
Due to the political instability in the Middle East, it may have given an interest in the green industry involved in producing alternative fuel resources and solar panels etc. But again, the oil price fluctuates frequently, disrupting the green "industry" when the oil price is low. Also it is important to acknowledge that political instability means no foreign investment in that country.
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