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Politics : Foreign Affairs Discussion Group
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To: Sam who wrote (137188)6/23/2004 1:25:48 AM
From: Bilow  Read Replies (1) of 281500
 
Hi Sam; Re: "Oil won't go much higher than $45/barrel or so for long. Above that price, there are a lot of reserves available, even here in the US. Zeev knows more details than I do, but oil won't go over $45 except for relatively short periods of time."

The alternative sources take years to develop. I consider "years" as "long". But as far as figuring out a top price for oil there are other factors. The oil shock itself will cause high price inflation in the US, and interest rates will have to rise accordingly. We're already running big time budget deficits with all time low interest rates, higher rates will push those deficits even higher. The oil shock will put a lot of people out of work, and that will put more pressure on those budget deficits. Higher bill for oil will push the trade deficit, already high, that much higher, and in the face of high unemployment, the Fed will tend to let the dollar drop rather than raise rates high enough to put people out of work.

All I'm doing is describing the "stagflation" that we've already been through as a result of a relatively mild oil shock back in 1973. Cut off oil from Saudi Arabia (and Iraq and whoever else ends up in flames) and we could get much much worse.

Zeev could be right, but only in the long term, and only in dollars corrected for inflation.

-- Carl
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