Oil Price Rise Caused by Tensions with Iran is the Biggest US Economic Threat

The possibility of conflict with Iran, and the resulting disruption such a conflict might cause to oil markets, is now considered the largest economic threat to the United States, said nine of 18 economists recently polled by CNN Money.

The economists say that increasing oil prices currently prevail over the risks caused by Europe’s debt crisis, Washington’s continuous budget gridlock and China’s slowdown worries.

Fermanian Business & Economic Institute’s chief economist Lynn Reaser said that a disruption of Iranian oil inventory can bring crude prices to $200 per barrel.

Moody’s Analytics’ economist Chris Lafakis said that a military conflict may bring oil prices to $180 per barrel and they are highly concerned about it because it can trigger a recession.

It appears that the economy can manage oil costs around $100 per barrel and gasoline prices close to $4 per gallon. While the prices are comparatively high, spending of consumers keeps on rising.

The President of the United States seems to be strongly aware of the situation and has been trying to do something to keep the proper balance in the sanctions it imposes to Iran on its alleged nuclear program.

The sanctions are gradually phased to exert just enough pressure on the oil industry of Iran in order for it to negotiate while maintaining control in the increases in oil prices and the possibility of a military conflict.

So far, the strategy seems effective as Iran consented to new talks. But, it is not yet certain if the talks will lead it to stop its nuclear program.

Iran claims that its nuclear program is for peaceful aims, even if many think that its goal is to create a bomb.

Most economists do not think that a conflict with Iran and the crude oil price increase that may come with it is a possibility. They only think that it is more possible than other scenarios. Lafakis said that out of all the factors that could disrupt the economy that has the top chance of actually happening.

As a comparison, five economists in the survey conducted by CNNMoney stated that the largest risk to the economy of the United States is a financial market meltdown because of Europe’s sovereign debt crisis.

By: Chris Termeer