How will gas prices impact the economic recovery?
International oil prices have again risen above $100 per barrel. Sustained high prices at the pump threatens to slow down the U.S. economic recovery (Photo: Wikipedia)
By ISAAC COHEN*
Channel: Economics
International oil prices, which have risen above $100 per barrel, and gasoline prices in the United States, approaching $4 per gallon, could become a political issue in this election year. Once again, turbulence in the Middle East is pushing up oil prices and threatening this year’s positive trend in U.S. economic performance.
The concern that gasoline prices may endanger the reactivation of the U.S. economy comes after a succession of good economic news. For instance, since the end of last year, job creation has cut the unemployment rate almost one percentage point, from 9.1 to 8.3 percent. Additionally, in a rare act of bipartisanship, Congress agreed to extend through the rest of the year the payroll tax cut which was about to expire by the end of this month.
The increase in gasoline prices could wipe out the additional income freed by the rebate in payroll taxes — particularly if the tension in the Middle East keeps pushing up oil prices well into the summer high driving season.
This external oil shock, caused by turbulence in the Middle East, underlines the fact that, by coincidence or design, the main sources of world oil are located in the most turbulent region of the planet. However, there is hope, because the world’s energy map is undergoing significant changes. According to energy expert Daniel Yergin, during the second half of this decade, the Western Hemisphere will become self sufficient in energy.
*Isaac Cohen is an international analyst and consultant. He is a commentator on economic and financial issues for CNN en Español TV and radio.
