00:00 Speaker A
At what level do oil prices need to reach to have a material economic impact? Like an economist, Ed, what are you looking at? For example, is it 100? Is it 120? And then, you know, it has to stay there for a certain number of days or weeks, Ed?
00:10 Ed
Well, yeah, the problem is you can’t really go back in time and look at some of the previous energy crises and come up with, uh, you know, this is no different. This has happened before. This has happened before. We had two oil crises in the 1970s, but uh
00:30 Ed
Well, they do cause recessions, and they do cause inflation. We came up with a new term “stagflation” to explain what was happening. Well, that’s not the case now because the United States is much less dependent on foreign oil. In fact, we are an exporter of oil and gas. Well, price does matter, though. I don’t think we’ll have oil shortages and blocked gasoline pipelines like we did in the 1970s.
00:52 Ed
But $100 for oil and gas might be $40 for a gallon, or even $4 for a half-gallon. uh I think that could put a strain on uh lower income consumers. Then some nervousness in the stock market may also reduce the confidence of those uh households that are doing well in the stock market. This is where the risk lies.
01:17 Ed
Look, my base case is that the economy is going to show its resilience again and we’re going to get through this. I and I do think this is the most likely scenario. uh but uh, you know, things have changed since the war started and I have to reflect that into the risk assessment. Therefore, I increase the risk of recession and problems to 35% instead of 20%.
01:43 Speaker A
What are the indicators? Or maybe there’s a set of indicators, Ed, that you observe that suggest to you, okay, you know what? I think the worst is over. Like is it oil prices or are you looking at shipping in the Strait of Hormuz, or maybe some inflation data?
01:56 Ed
It’s very simple. I’d like to see some tankers go through the straight, uh, without any incident. Well, maybe they were all waiting for the U.S. Navy to take action and were ready to do so. Uh, but uh, the problem is, uh, the Iranians are using these suicide drones and they, uh, they have a lot of them. It’s hard for them to knock all this stuff out of the sky and obviously they uh still have quite a lot of this stuff in stock. So, I’d like to see uh, for all practical purposes, we’re not uh, the Iranians are not uh running out of suicide drones or uh they realize that they’ve lost the war.
