Economists and policymakers use the term “oil shock” to describe the notion that a rapid spike in oil prices spells will cause deep and long-term economic damage. With current events in the Middle East and North Africa these fears are on the rise again. A recent piece in the Boston Globe (Feb 13, 2011) summarized current economic research and looks at recent history to suggest that oil shock are far less devastating than we all think:
- “.. a growing body of economic research suggests that this conventional view of oil shocks is wrong. The US economy is far less susceptible to interruptions in the oil supply than previously assumed.”
- The US economy is far less oil-dependent then it was in 1973 and far more flexible and resilient, Oil is still a major factor in everything touching our economy, but heavy industry and utilities are far less oil-dependent than they once were.
- Recent history shows that price spikes caused by supply disruptions have been short-term. (The Iran-Iraq war in the early ’80’s, the 1990 Gulf War and the destruction of Kuwait’s wells, and Hurricane Katrina all resulted in short spikes but no long-term harm.)
- When there have been long price rises (2006-08 for example), researchers found them to be the result of panic, rather than shortage
- If we’re less hostage to oil shortages, then what does that mean to all the interests and policies designed around “Oil Shock”. It’s not just foreign policy, but clean energy, coal, and energy efficiency (to name a few) that base their arguments on what may be a discredited theory.
Read the article and let us know what you think: http://www.boston.com/bostonglobe/ideas/articles/2011/02/13/crude_reality
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