Wednesday, February 23, 2011

Turmoil in the Middle East

The unrest in the Middle East has spread from Egypt and Bahrain to Libya this week, and it is becoming clearer that all this governmental turmoil is going to have an effect on our economy here at home. Libya is a massive exporter of oil; a fourth of its entire GDP comes from oil revenues. The world economy seems to be expecting some disruption in Libya's oil exporting. Oil futures are closing in on $100 a barrel, and in London, oil prices are nearing their highest point since September 2008.

To a certain extent, the markets had already factored this in. The International Monetary Fund had forecast that oil prices would average about $95 a barrel this year. Unless the price shoots up even further, that's still a fairly realistic estimate.

But these potential price increases could have a serious effect on our economy. An extended increase in the price of oil worth $10 a barrel, according to one estimate, would chop off roughly 0.5 percent of our GDP growth. That would be another blow to this still-recovering economy.

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