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"In 1973 an Arab embargo sent oil prices soaring, and a global recession followed. In 1979 the Iranian revolution provoked a second surge in oil prices, and another global recession. Are we now at risk of a third oil crisis? I wish I could say no, but I can't. Oil prices have risen about $10 per barrel since the situation in the Middle East began deteriorating. So even if they stay where they are, this represents a serious shock to the system — and there could be more to come."
"The point is that it would not take much worsening in the political situation to produce markets so tight that the logic of market power kicks in and countries decide that, quite aside from politics, their financial interest lies in reducing, not increasing, their output."
"Today, after a decade of price stability, fears of inflation are much more muted. Instead, the main concern is the drag of oil prices on purchasing power. Each $10-per-barrel increase in the price of oil is like a $70 billion tax increase, one that falls most heavily on middle- and lower-income families. And this is not a good time to slash purchasing power. Business investment, which plunged last year, has still not recovered; optimistic economic forecasts depend on the assumption that buoyant consumer spending will keep the economy afloat until businesses do decide to invest again. If consumers are made poorer by higher oil prices and cut back instead, that assumption goes out the window. And the Fed can't respond with another big round of interest rate cuts: since it has already reduced rates from 6.5 to 1.75 percent, it doesn't have much ammunition left." ... [more]
3:45:58 AM Google It! 
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