Crude reality - Maybe oil is not such a huge deal - I think I disagree, but it is provoking.

There’s no denying the importance of Middle Eastern oil to the US economy. Although only 15 percent of imported US oil comes directly from the Persian Gulf, the region is responsible for nearly a third of the world’s production and the majority of its known reserves. But the oil market is also elastic: Many key producing countries have spare capacity, so if oil is cut off from one country, others tend to increase their output rapidly to compensate. Today, regions outside the Middle East, such as the west coast of Africa, make up an increasingly important share of worldwide production. Private companies also hold large stockpiles of oil to smooth over shortages — amounting to a few billion barrels in the United States alone — as does the US government, with 700 million barrels in its strategic petroleum reserve. And the market can largely work around shipping disruptions by using alternative routes; though they are more expensive, transportation costs account for only tiny fraction of the price of oil.

Compared to the 1970s, too, the structure of the US economy offers better insulation from oil price shocks. Today, the country uses half as much energy per dollar of gross domestic product as it did in 1973, according to data from the US Energy Information Administration. Remarkably, the economy consumed less total energy in 2009 than in 1997, even though its GDP rose and the population grew. When it comes time to fill up at the pump, the average US consumer today spends less than 4 percent of his or her disposable income on gasoline, compared with more than 6 percent in 1980. Oil, though crucial, is simply a smaller part of the economy than it once was.....

There is no denying that the 1973 oil shock was bad — the stock market crashed in response to the sudden spike in oil prices, inflation jumped, and unemployment hit levels not seen since the Great Depression. The 1979 oil shock also had deep and lasting economic effects. Economists now argue, however, that the economic damage was more directly attributable to bad government policy than to the actual supply shortage. Among those who have studied past oil shocks is Ben Bernanke, the current chairman of the Federal Reserve. In 1997, Bernanke analyzed the effects of a sharp rise in fuel prices during three different oil shocks — 1973-75, 1980-82, and 1990-91. 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. Today, his view is accepted by most mainstream economists....

n 1997, Graham Fuller and Ian Lesser, two political analysts at the Rand Corporation with long records of US government service, estimated that the United States spent “$60 billion a year to protect the import of $30 billion worth of oil that would flow anyway.” A 2006 study by James Murphy, an economist at the University of Alaska Anchorage, and Mark Delucchi, at the University of California Davis, similarly found that when the costs of the wars in Iraq and Afghanistan were taken into account, the expenditures ranged anywhere between $47 billion and $98 billion per year. But the amount of oil coming to the United States from the region was worth less than $35 billion per year.

 

via articles.boston.com