Is America Primed (and Pumped) for Another Recession?

Continuing unrest in major oil-producing pockets of the Middle East—including recent changes in Egypt’s leadership and the current chaos in Libya—is adding fuel to the rumors that rising gas prices could take us into another economic downturn.

Yes, you read that correctly.

According to a new report from The Huffington Post, “Yet another group of analysts have issued grim warnings about the recent run-up in oil prices. In a letter to clients, analysts at Bank of America Merrill Lynch have cut forecasts for global economic growth after continuing unrest in Libya led to rocketing oil prices. The economists cut global gross domestic product expectations for this year to 4.3 percent from 4.4 percent.  They also warn that if oil prices keep climbing and stay high, there could be another recession.”

The reason unrest in Libya is having such a domino effect on America’s economic landscape? Libya is Africa’s largest oil exporter, and with its oil production in limbo, it chokes off 1 percent of the global oil supply. The result is rising costs of Brent crude, an industry benchmark that spiked to $116 per barrel this week.

“The Bank of America Merrill Lynch economists warned that if prices hit $150 a barrel, and stayed there, there would be a serious risk of global recession. If prices hit $200, a recession would be almost certain.”

But higher oil prices are already starting to have an impact, as average Americans have responded by cutting consumer spending; and employers, who were forecasted to add workers in 2011, have cut back on hiring in order to prepare for increased shipping costs.

Emerging energy prices will also be felt where it may hit the economy the absolute hardest: the housing industry. As we just begin to recover from 2008’s real estate reckoning, rising prices at the pumps—and resultant rising costs of food and utilities— could mean more households struggling to pay mortgages, more foreclosures, and even more homes submerged in the sludge of an underwater market.

All of this from a dependence on fossils fuels thousands of miles away.

“Libya's oil production has been decimated since the unrest began. Earlier this week, Morgan Stanley announced it would cut off all oil trades with Libya. Analysts say right now, the global economy can cope with current levels of oil disruption: ‘As long as it does not spread to the UAE, Kuwait, Qatar or Saudi Arabia or worsen in Bahrain, Yemen or Iran, oil supplies from Saudi Arabia and Kuwait should be able to make up shortfalls in Libya,’ analytics firm Cameron Hanover said in a report.

But $200 oil could be a very real possibility if protests threatened the government of Saudi Arabia, one of the world's largest oil producers. Though Saudi Arabia has increased oil production, it's not clear that the kingdom could make up for a major shortfall in oil production around the world. “

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