Thursday, February 24, 2011

 

Will loss of Libyan oil threaten US with another recession?


by Larry Geller

While Obama remains essentially blindsided by the democratic surge in the Mid-East, the US economy could face a threat as oil production is reduced. Simply making speeches is not going to change the attitudes of Libyans who watch their fellow protesters being slaughtered while the US does nothing.

80% of Libya’s production goes to Europe, but would presumably have to be replaced by Saudi oil. The Libyan oil fields are now under the control of the protestors. Here’s the theory:

Libya is the third largest African oil-producing country and as a result of the ongoing violence, oil and gas production has been slashed in half as staff has been evacuated.

However, Libya's specialty is sweet light crude and the question remains as to whether Saudi Arabia actually does retain enough of this type to offset the disruption of oil production in Libya. As the U.S. economy is already in a fragile state as it struggles to recover from a debilitating recession, analysts have reminded Bloomberg that a large surge in oil prices in both 1991 and 2001 drove the U.S. into two recessions. Just as the U.S. is emerging from one recession, will it dive back into another if the price continues its upward trend?

[San Francisco Chronicle, Libya Halves Oil Production, OPEC Ready To Step In (OIL), 2/24/2011]

Hawaii is very vulnerable to oil prices and lost its ability to control oil company profits when the previous Republican administration defeated price cap laws. With approximately 95% of its food imported, not only the cost of living but the cost of doing business could increase. This state, above most others, has an interest in the outcome of US foreign policy with respect to the Mid-East.

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