Oil Shocks and the Economy

Interested in trying to better-understand the under-discussed issue of the economic consequences of an Israeli attack on Iran I tried to see what exists in terms of research on the macroeconomic impact of oil price shocks. A lot of the Googlable discussion of this point dates from 2004 and is summarized (PDF) by Roubini and Setser who observe that “Private sector estimates generally suggest that a persistent 10% increase in the price of oil – say from an average $30 to $35 – would reduce the US and G7 growth rate by about 0.3%-0.4% within a year.”

Specifically, Global Insight (PDF) came up with this:

pricespike 1

According to a 2007 estimate from Standard & Poor’s if Iran managed to close the Straights of Hormuz to shipping, oil might go to $250 a barrel which is much more than a $10 increase.