In addition to the record budget deficits, here's some more financial
fall-out from the war in Iraq. Basically, the loss of 2m barrels of
Iraqi production (including illicit shipments) transforms every
disruption into a major pricing event. A major disruption (Saudi Arabia
in late November) would put the price into orbit.
- Home heating this winter is now expected to cost consumers an
extra 50 cents a gallon even before the first snowflakes hit the
ground. This means those who heat their homes with fuel oil or natural
gas may pay $500 more this winter to stay warm.
- Economists are lowering their growth forecasts for next
year as they factor in the surge in oil prices. Every one-cent rise in
the price of crude, which is up 60 percent so far this year, costs the
US economy $3 billion.
“The big question is when do high oil prices push us into a
recession,” says Mr. Chan. “We don't know yet. There is no target
price, but as you move to $60 a barrel, it gets very, very dicey and
even the Federal Reserve will begin to question what it's doing.”
Today, Stephen Roach added:
Oil is now at the price point that could provide a
serious shock to an unbalanced world economy; if WTI oil prices hold at
around $50 for another 10 weeks or so, the risk pendulum should swing
toward global recession in 2005. [John Robb's Weblog]