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Monday, May 17, 2004

A Crude Shock by Paul Krugman Via NYTimes

The last time oil prices were this high, on the eve of the 1991 gulf war, there was a lot of spare capacity in the world, so there was room to cope with a major supply disruption if it happened. This time there isn't.The International Energy Agency estimates the world's spare oil production capacity at about 2.5 million barrels per day, almost all of it in the Persian Gulf region. It also predicts that global oil demand in 2004 will be, on average, 2 million barrels per day higher than in 2003. Now imagine what will happen if there are more successful insurgent attacks on Iraqi pipelines, or, perish the thought, instability in Saudi Arabia. In fact, even without a supply disruption, it's hard to see where the oil will come from to meet the growing demand Paul Krugman concludes by saying,"Still, if there is a major supply disruption, the world will have to get by with less oil, and the only way that can happen in the short run is if there is a world economic slowdown. An oil-driven recession does not look at all far-fetched".Really scary..

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