Wild card events are just that - wild because they present a complete surprise to the auction markets - they are not priced in. The popular surge against despots in the Mid East is such an event. No one we knew anticipated the pace of contagion after initial Egyptian turmoil. No one we knew guessed that a guy named Gaddafi might threaten to sabotage his own oil fields a few days later.
A 30% increase in the price of oil is a reasonable target if violence continues. Such a price if maintained for say six months would shave at least 1 ½ % from GDP, likely more, our humble guess. Costlier crude would tip many nations into a recession.
The markets aren’t horribly worried at the moment; there has been some quality flight to US treasuries but there is no panic. Most high users like airlines always hedge fuel costs, so for example one major airline is actually saving money when crude rises above $88. And it’s expected that the Saudi’s will kick in to help, plus OECD reserve levels are high. Finally, one of two functioning democracies in the region - Iraq - will contribute. (It is no surprise that Iraq and Israel have not been visited by uprisings.)
Still, the risk is a set back in US growth delivered by higher oil prices. This is so because most observers do not appreciate the fervor of those so long oppressed in the Mid East. Free society will pay a hefty price to deliver consensual gov’t to this region. We won’t get there without further turmoil, and we won’t get there at all unless the administration comes to understand the use of US leverage in delivering change.
Obama failed to support the Iranian freedom protestors, ignored the abuses of the Cuban and Syrian totalitarian regimes, and kept silent about the destruction of democracy in Venezuela.
He is at the very bottom of his learning curve. He needs to understand that the best guarantee to long-term energy security are free people and free markets; and, he needs to do his part.
Robert Craven
A 30% increase in the price of oil is a reasonable target if violence continues. Such a price if maintained for say six months would shave at least 1 ½ % from GDP, likely more, our humble guess. Costlier crude would tip many nations into a recession.
The markets aren’t horribly worried at the moment; there has been some quality flight to US treasuries but there is no panic. Most high users like airlines always hedge fuel costs, so for example one major airline is actually saving money when crude rises above $88. And it’s expected that the Saudi’s will kick in to help, plus OECD reserve levels are high. Finally, one of two functioning democracies in the region - Iraq - will contribute. (It is no surprise that Iraq and Israel have not been visited by uprisings.)
Still, the risk is a set back in US growth delivered by higher oil prices. This is so because most observers do not appreciate the fervor of those so long oppressed in the Mid East. Free society will pay a hefty price to deliver consensual gov’t to this region. We won’t get there without further turmoil, and we won’t get there at all unless the administration comes to understand the use of US leverage in delivering change.
Obama failed to support the Iranian freedom protestors, ignored the abuses of the Cuban and Syrian totalitarian regimes, and kept silent about the destruction of democracy in Venezuela.
He is at the very bottom of his learning curve. He needs to understand that the best guarantee to long-term energy security are free people and free markets; and, he needs to do his part.
Robert Craven
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