The price of oil is surging toward a hundred dollars a barrel for the first time since 2014, which could deal a serious blow to the world economy and further drive up inflation. The price increase has the U.S. Federal Reserve and central banks worried, as they’re meeting to get a handle on the issue. In fact, JP Morgan Chase is warning that if the price of oil per barrel runs up to $150, it will stall global expansion and send inflation spiraling to over 7%. I spoke with Professor Eric Smith of Tulane’s Institute of Energy about the fallout of the rising price of oil, it’s impact as it relates to inflation, and the impact for Louisiana.
What are the challenges for the U.S. regarding this spike in oil prices right now?
Perhaps there needs to be a little introspection on the part of policymakers - that would help because essentially, this is a self-inflicted wound. It’s hurt the energy producing states likeTexas and Louisiana. If we don’t want that to happen, then the Biden administration needs stop doing what they’re doing know
With fossil fuels providing over 80% of the world economy’s energy, the United States is obviously not able to transition to another form of energy - and won’t be for a while.
Louisiana will be fortunate based on other people's misfortune, since the state doesn’t produce
much oil anymore. It'll certainly impact U.S. offshore production, so we'll have some job impact. Typically the U.S. is almost self-sufficient in oil production anyway, so we will probably see relatively little impact on our inflation rate. Some of these developing countries will be severely impacted if the cost of oil goes past $100 a barrel, and that’s not good for political stability worldwide.
As these economies have to deal with this, will there be an increased risk for a recession?
Don't forget, we've been in times like this before. During the Jimmy Carter administration, we had 20% inflation. He wasn’t to blame for all of it, but eventually the Federal Reserve shut down lending, and credit disappeared. The elimination of credit greases the wheels for everybody’s economy.
What comes out of these economists meetings? We hear the word recession starting to get thrown around…
The danger for Louisiana is that we tend to think of ourselves as an oil producing state - we are not. We're a big gas producing state. The deepwater offshore oil that's in federal waters does flow into the Louisiana economy and it produces some of our best blue and white collar jobs. The U.S. prices are not going to be radically different from the rest of the oil prices around the world. We could reduce some of these taxes and some of these repressive actions that have caused people to stop producing oil and gas.
