(Drivebycuriosity) - The conflict with Iran is escalating. A full fledged war may be around the corner. The situation reminds of 1991. Then the first Iraq war induced a spike of the oil price which caused a recession. In 2008 an escalating Iran conflict - and speculation that the country might shut down oil transports via the Strait of Hormuz - caused the oil price to triple and to jump to $148 (chart below). A study by Prof. Hamilton, University of California, San Diego, shows that the oil price shock from
2008 turned the economic slowdown into a
severe recession (econbrowser).: "The oil price increase over 2007:H2-2008:H1 should be regarded
as a key development that turned the slowdown in growth into a
recession" (archives).
"Rapid increases in the price of oil have preceded
almost all U.S.
recessions" writes Prof. Tabarrok ( marginalrevolution ). You
can see this in the chart below which shows oil price development &
recession.
( source)
The causal connection between oil and recessions can easily explained.
Americans depend on gasoline. Many live in suburbs and need to drive to
go to work, to shop & to spend leisure time. High gas prices curb
their available income. "Oil prices played a role in
eventually bursting the US subprime bubble....In 2003, the average
suburban household spent $1,422 a year on gasoline, which rose to $3,196
in 2008 (oilprice). "Rising household energy prices constrained household budgets and increased mortgage delinquency rates" (oilprice).
Low income suburban homeowners suffered most from the rising gas
prices.
( source )
Fortunately history does not not repeat itself, there is no Groundhog-Day-effect. There is a significant difference to the 1990s and 2000s: Opec and the unruly middle east region, which
had caused a lot oil crisis in the past, lost their power. US oil
production jumped in the 2010s, thanks to fracking (chart above). Today
the US is much less dependent from Opec oil deliveries
than in the 2000s. Should the extreme case happen and Iran manages to block oil deliveries the US also could free their oil reserves. An Iran war recession is unlikely.
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