Middle East instability causes higher gas prices

A gas price sign is seen at a sation on Capitol Hill in Washington, Tuesday, Feb. 22, 2011. (AP Photo/Alex Brandon)
February 22, 2011 7:17:50 PM PST
Political scientists are indicating 2011 might be to the Middle East what 1989 was to Eastern Europe - a time when long-entrenched dictatorships tumble, ushering in a new populist era. Tunisia, Egypt and now Libya may eventually see new forms of government as happened in Poland, East Germany, Hungary and other former Soviet bloc nations. However, the turmoil in the Middle East is also creating jitters on Wall Street, in world oil markets, and at the local gas pump. The price of reform in the Middle East may impair the U.S. economic recovery.

Retail gas prices, already inching upward, will likely be heading higher according to Severin Borenstein, Ph.D., co-director the University of California Energy Institute and an expert on oil markets.

"I think that there's a risk they could go quite a bit higher if we see disruption spread, particularly if it spreads to Saudi Arabia," said Borenstein.

Consumers also may feel the bite when they go shopping because higher fuel will hit delivery vans and trucks.

"The sectors that are most vulnerable... those that have to pay a lot for transportation, so goods that are very costly to transport are the heavy goods that generally go by truck to the retail sector, and they take a huge hit," said Boresnstein.

Airlines and companies that outsource manufacturing overseas will be the sectors that will see the great initial impact as oil prices soar. Their choice will be absorb the added cost or charge higher fares. Silicon Valley buys and manufactures a lot of its parts and products overseas, so low-cost factories in China and other parts of Asia may have to raise prices as their energy and transportation costs rise.

Earlier on Monday, U.S. stock markets tumbled, suffering the biggest single-day drop of the year, as a result of concerns over Middle East turmoil. The Dow Industrials lost 178 points, closing at 12,212.79. While no oil shipments have been disrupted, the price of a barrel of light, sweet crude for delivery in March hit a two and a half year high of $93.57, up 8.6 percent in a single day.

Prof. Larry Diamond, Ph.D., a senior fellow at the Hoover Institution and an expert in emerging democracies and the Middle East, says the tension in Libya and neighboring countries will not end soon, and the U.S. economic recovery may suffer.

"This could very well be the 1989 of the Middle East. I don't think there's a single regime in the Arab world that is truly stable and secure. I think the entire region now is very fluid, very volatile, very much open to change," said Diamond.

He says it's a good time to renew commitments to clean technology, alternative fuels, and green tech jobs.

With experts saying there's no end in sight to the unrest in the Middle East, that means there's no relief in sight for consumers at the gas pump.


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