Oil Shock

All the focus on gas prices has, I think, obscured the fact that this is a major macroeconomic event.

$140 oil for the rest of the year implies an average oil price for 2008 of around $120 (maybe a bit higher)

Concretely, a rough calculation would suggest that this implies that the US will spend about $250 billion more on oil imports this year than last year. I don’t quite see how the US trade deficit can improve in the face of that kind of shock.

It implies a comparable increase in the oil import bills for Europe (which imports a bit less than the US) and the major oil importing economies of Asia (which together now import a bit more than the US) — and a roughly $750 billion increase in the revenues of the major oil exporting economies.