Tags: Roubini | Oil | Iran | gas

Roubini: Oil Price May Soar Even Without Iran Conflict

Friday, 16 Mar 2012 02:36 PM

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It won’t take an armed conflict over Iran’s nuclear program to push oil prices to dangerously high levels, warns Nouriel Roubini, chairman of Roubini Global Economics.

The so-called “fear” premium is not far off the mark, and that means risks to the markets are rising, Roubini says in a new column for Project Syndicate.

“Oil is already well above $100/barrel, despite weak economic growth in advanced countries and many emerging markets,” Roubini writes. “The fear premium might push prices significantly higher, even if no military conflict ultimately takes place, and could trigger a global recession if one does.”

Gasoline at $4 a gallon is “a damaging threshold for consumer confidence,” one that is likely to be breached as the summer vacation season commences in the United States, Roubini warns.

What’s more, before the 2008 credit crisis, the previous three global recessions were driven by oil shocks, led by military conflict in the Middle East in each case, he writes.

“Even the recent global recession, though triggered by a financial crisis, was exacerbated by spiking oil prices in 2008. With the barrel price reaching $145 in July of that year, oil-importing advanced economies and emerging markets alike faced a recessionary tipping point,” he explained.

Consumers seem to have accepted the notion of $4 gas for now, but $5 would be a serious problem, according to new data from the University of Michigan.

The current national average for regular is $3.80 a gallon, reports tracking service GasBuddy.com, vs. $3.53 a gallon one year ago.

The Thomson Reuters/University of Michigan consumer sentiment index out Friday fell slightly to 74.3 from 75.3 in February. Rising gas prices seem to be the culprit.

"Overall, the data indicate that $4 gasoline has lost its shock value, although the drain on discretionary income will still affect spending, mostly among lower-income households," survey director Richard Curtin said in a statement.

"If gasoline prices approach $5 per gallon, however, a widespread and substantial impact is likely."

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