The Chinese Xinhua agency quotes Robin Bew, chief economist for the Economist Intelligence Unit claiming that a war against Iraq would lead to such a large increase in oil prices that a world recession would ensue.
"Our forecasts assume that the United States does attack Iraq, and that the Middle East oil producers oppose the US action and team up to cut oil production, and thereby, pushing the oil price to, say, 70 US dollars a barrel or more, that would deliver a massive supply-side shock to the global economy and probably trigger a massive recession, similar to the oil shocks in the 1970s," Bew said.
Is this reasonable? I don't see the $70/barrel oil happening as a result of the invasion of Iraq. First of all, the war will be very fast. Afterward the US will start the Iraqi oil fields pumping at full speed. The other oil producers must know this. Therefore the wise move for the other producers would be to pump a lot of oil now and sell in advance of the coming glut. The non-Middle Eastern producers have no political motive to cut production in the first place. Plus, some of the Middle Eastern producers are actually providing support for the US attack (eg Kuwait and Qatar).
|Share |||By Randall Parker at 2002 September 13 03:36 PM|