Consumer confidence is a fragile thing and yet that is what our economic recovery is based on. With consumer confidence at a post recession high – illustrated by the Dow’s flirtation with 13,000- we need to consider what impact the uncertainty in the world oil market will have on the economic recovery. The instability in the world that is giving rise to the increase in gas prices is a threat to the recovery.
The potential to take dollars out of our pockets by increasing the cost of gas is a “silent tax” on our economy that will slow down the recovery. But as the economy recovers shouldn’t we expect the cost of inputs linked fuel to rise? Of course we should.
This pressure adds to the upward stress on gas prices caused by the never-ending bellicose statements made in the Middle East in general and Iran in particular. The conditions in the Middle East continue to make the economic outlook for 2012 a bit murky. Add to that the questions on the health of Venezuelan Dictator Hugo Chaves and there could be an oil supply storm in the offing for 2012. This could have drastic effects on the recovery with the uncertainty causing gas prices to drift up. This is predictable. Past experience indicates that we also must plan for the eventual shock to supply when a Middle Eastern power decides to impact our economy by curtailing supply or rattling its saber.
As the economy recovers, the commensurate increase in world demand will also put upward pressure on oil prices. We are seeing the world recovery combine with global instability to create significant upward pressure on the price of oil and its byproducts now and this is expected to increase this summer.
What should the USA do? Open our wildlife preserves to oil exploration? How about the Gulf of Mexico? Increase “fracking” as we search for cheap natural gas?
None of these is an answer on its own. What we need is a wide ranging plan to increase the energy independence of the USA while maintaining quality controls on the environment. America needs access to its cheap fuels and we do not need to export it to other countries.
We need to emphasize fuel efficiency and mass transit. These methods of offsetting the rise in gas prices are taking hold. In Miami, you can live in the heart of the city and you will not need a car to go to work, to shop or to play. This is a new phenomenon. I am working on an apartment project that will be developed on Orlando’s new light rail commuter system. There are good solutions out there!
But are oil prices that high on a historic basis – not really. In inflation adjusted dollars we are at an all time high – yes but prices are still in a range that has not significantly altered behavior across a wide range of Americans – yet. Seniors- Our most at risk population – have already seen that fuel costs are higher than food costs or the costs of some of their medications. Our young people are ready to embrace the new urban paradigm and leave their cars behind. Detroit is already dealing with the impact of fewer young drivers. This will continue to be the case having wide ranging social and economic impacts.
The United Sates is making its military plans public to ensure confidence in the oil flow from the Middle East remains consistent. What America can do about Venezuelan instability is unknown.
As we look forward to 2012 energy costs loom as the obvious thing that could derail our budding economic recovery. Remember – in early 2011 we all thought the recovery would boom. In all actuality – we can expect it to grow slowly for the foreseeable future.
