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Britain Expects 70s Style Oil Shock Will Prompt Loss of GDP

March 4, 2011

On February 23rd I did a post on possible double-dip recession risk due to oil prices. Here is the original post, then I have an UPDATE that follows about how Britain is facing a “70s-style oil shock.

ORIGINAL POST

I just finished listening to the Economics Editor for Bloomberg, Michael McKee, on whether the Libyan situation which is spiking oil prices will “shock” the markets and lead to a double-dip recession. McKee stated that 10 of the previous last 11 recessions were preceded by oil shock to the markets. The big question is, is this an oil shock to the markets?

Here is a brief summary of his report:

– Oil prices are highest in three years
– Gas nationwide average of $3.19 (closer to $3.79 here in SoCal)
– The U.S. uses 400 million gallons per day

TODAY’S POST:

Britain is facing a 1970s-style oil price shock that could cost the UK economy £45bn over two years, the climate and energy secretary, Chris Huhne, is expected to warn in his first intervention on the issue since the start of Middle East political crisis.

In Thursday’s keynote speech on the impact of the oil crisis, Huhne argued that an $100 (£61) a barrel price for oil transforms the economics of climate change in Britain.

He disclosed the Department of Energy and Climate Change’s (Decc) economists have warned that if the oil price rise turns into a 1970s-style shock the cumulative loss to the UK economy would be worth £45bn over two years. Decc’s economists made the calculation on the basis of oil prices rising from $80 a barrel last year to $160, according to Huhne.

At $102 a barrel, oil is at a two-and-a-half year high and there have been predictions that if the political turmoil spreads across the Gulf, the price will rise considerably more.

Huhne will say: “If the oil price doubled, as from $80 last year to $160 this year, it could lead to a cumulative loss of GDP of around £45bn over two years. This is not just far-off speculation: it is a threat here and now.”

Entire article click here

Related: Soaring oil price reignites fossil fuel vs renewables debate

As pressure grows on the government to stabilise fuel prices via tax breaks, green campaigners say this may be the ideal time to reduce the UK’s dependence on oil and gas. Click here for story

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