Forecasts of Future Oil Price Shocks

Several models, including the International Monetary Fund (IMF) and ORNL, use historical data to predict the economic effects of oil price increases on various components and measures of the United States and the global economy. The IMF model (Mussa 2000) predicts that a 5 increase in the price of oil per barrel initially would reduce real GDP by about 0.3% and reduce demand by 0.4% among industrialized countries. This impact is slightly higher in the United States and Euro regions than in other industrialized countries (Mussa 2000). 

Given an oil price of 40 per barrel, rules of thumb would be combined in the following way to estimate the impacts of a disruption. For every 1 million barrels per day of oil disrupted, the price rule of thumb suggests that oil prices could increase by 4- 6 per barrel, or by 10%-15%. The GDP rule-of-thumb suggests that if these price increases were sustained, the U.S. GDP growth rate could be reduced by 0.05-0.15 percentage points. (EIA 2006d). 

Foreign influences as well as domestic and regional conflicts historically have affected Middle East politics. Relationships formed at the beginning of the twentieth century remain both sources of mutual benefit and sources of conflict within the region. The lack of representative governments and the presence of corruption in these nations also creates instability. 

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