sidering the most recent leap in oil prices, inflation reports in the near future could be strong, pushing the twelve-month CPI rate up to 3 percent or more (Business Week, The McGraw-Hill Companies, Economic Outlook, March 6,2000). The question of whether to maintain the status quo or increase production remains in the hands of OPEC members. At present, Saudi Arabia and Iran appear to favor increasing production, but some other constituents want to extend the production cuts. Oil prices have risen to more than $34 per barrel and growing concerns that a shortage of gasoline could arise this summer if OPEC does not pump more oil begin to circulate. In retrospect, the increase in crude oil prices over the last year is almost the same magnitude as the jump in oil prices going into the Gulf War (Oil and the Economy, “Will higher prices mean a recession?”, March 13,2000). Oil shocks—steep rises in oil prices, have preceded recessions in the US economy over the past 30 years. The most substantial shocks occurred in 1973-74, 1979-80 and 1991, and roughly correspond to the post-1970 recessions. Statistical data has shown a correlation between rising oil prices and diminishing GDP growth.. The effect of oil prices is not an isolated economic phenomenon. It largely depends on the “political economy” component, since the price of oil is affected by the production decisions of the OPEC countries and these OPEC countries may time their price increases in reaction to world economic conditions, especially with the fluctuating United States economy since September 11, – thus complicating attempts to forecast economic behavior. While there has been a definite relation between rising prices and GDP growth, concerns of rising oil prices may not have such a tremendous effect on the economy as in the past. Oil costs have been a shrinking part of the US economy in recent years. Since 1970, energy use as a fraction of GDP h...
