Oil is not part of the economy. Oil is the economy:
Oil prices may surge to $220 a barrel if political unrest in North Africa halts exports from Libya and Algeria, Nomura Holdings Inc. said.
Crude futures rose to almost $100 in New York today, the highest in more than two years, as violence in Libya threatened to disrupt exports from Africa’s third-biggest supplier. Libyan leader Muammar Qaddafi vowed yesterday to fight a growing rebellion until his “last drop of blood.” Protests in Algeria led to the ending of a 19-year state of emergency.
“If Libya and Algeria were to halt oil production together, prices could peak above $220 a barrel and OPEC spare capacity will be reduced to 2.1 million barrels a day, similar to levels seen during the Gulf war and when prices hit $147 in 2008,” the Tokyo-based bank said in a note today. …
“These are levels that effectively kill the global recovery,” Schork said in an interview. “You can never say never, but $220 is blatantly not sustainable.”
Nomura forecasts that a jump to $220 would probably cause a temporary collapse in global oil consumption of 2 million barrels a day. That’s more than the 1.5 million barrels of daily growth anticipated this year by the IEA.
Get used to it.
One lesson to be learned here is that with peer competitors the planet over consuming more and more of the resources that we assumed were ours there is no longer any swing capacity that would have in the past absorbed geo-political market shocks. Previously, we relied upon Saudi Arabia to open up the spigot whenever the economy needed goosing. They can no longer fulfill that role and Iraq is nowhere near a point where its infrastructure is developed and secure enough to pick up the slack.
Another lesson is that energy security is becoming increasingly reliant on local gendarmes and despots. And while corrupt dictatorships can guarantee stability in the short term they can topple quite easily when the local “Mohammedans”, as our friends on the right have lately begun referring to them, start to take matters in their own hands. The biggest nightmare scenario currently would be for the unrest to spread to Saudi Arabia and if the Abdul Aziz family goes all bets on Western Civilization are off.