One need look no further than the recent recession to see how the global economy affected the US economy, and vice versa. Oil can be a big link in this interconnectivity.
“If you look at the concern about uprisings in the Middle East and spreading into the Persian Gulf, and if Libyan exports are out for an extended period of time, $100 a barrel looks sustainable,” says Sarah Emerson, president of Energy Security Analysis Inc. (ESAI) in Wakefield, Mass.
As a result of oil at about $100 a barrel, the world economy has a hitch in its step. But it’s unlikely to trip and fall unless prices go much higher.
How much higher? Oil prices above $120 a barrel begin to have negative effects on the world economy, says Mohsin Khan, a senior fellow at the Peterson Institute for International Economics in Washington.
If the price spurts to $140 a barrel, some estimate it would drive the world economy back into recession, Mr. Khan says.
“It impacts the economy in two ways: reducing growth and increasing inflation,” he says.
In the US, every $1 increase in the price of a gallon of gas adds $1,000 to a household’s annual expenses, says Sara Johnson, senior research director of global economics at IHS Global Insight in Lexington, Mass. Over the past 12 months, the price is up 77 cents.
But in some countries, the impact is less clear-cut, Ms. Johnson says.
“In many of the populous countries, governments put ceilings on energy prices and then provide a subsidy to protect consumers from bearing the full impact of a price shock,” she says.
Among the countries doing this are India, China, some Middle East nations, and a few in Latin America. Still, some nations are concerned with the rising prices. Spain, for one, recently reduced its highway speed limit from 75 miles per hour to 68.
