Middle East Unrest : Oil Production Uneffected?

This scenario seems a little out of bounds given past histories of Middle East unrest. And with Ben Bernanke weighing in with his analysis, with his record of being wrong, QE2, I truly think this article's hypothesis bears watching.

Unrest in Middle East Will Not Affect Oil Supply
Source: Jeremy Kahn, "Crude Reality," Boston Globe, February 13, 2011.

As the unrest in the Middle East has spread, people in the West have been keeping a wary eye on something closer to home: the gyrating stock market and the rising price of gas. Fear that the upheaval will start to affect major oil producers like Saudi Arabia has led speculators to bid up oil prices -- and led some economic analysts to predict that higher energy costs could derail America's nascent economic recovery.

But a growing body of economic research suggests that this conventional view of oil shocks is wrong, says the Boston Globe. The U.S. economy is far less susceptible to interruptions in the oil supply than previously assumed. Scholars examining the recent history of oil disruptions have found the worldwide oil market to be remarkably adaptable and surprisingly quick at compensating for shortfalls. Economists have found that much of the damage once attributed to oil shocks can more persuasively be laid at the feet of bad government policies.

The U.S. economy, meanwhile, has become less dependent on Persian Gulf oil and less sensitive to changes in crude prices overall than it was in 1973. Past oil shocks have also been studied by Ben Bernanke, the current chairman of the Federal Reserve, says the Globe.

In 1997, Bernanke analyzed the effects of a sharp rise in fuel prices during three different oil shocks -- 1973-1975, 1980-1982 and 1990-1991. He concluded that the major economic damage was caused not by the oil price increases, but by the Federal Reserve overreacting and sharply increasing interest rates to head off what it wrongly feared would be a wave of inflation.