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crying over crude

  1. Ironically Bush is filling OPEC's coffers.

    Every time oil spiked in the last 30 years, recession came. Why should this time be different?
    February 27, 2003: 5:50 PM EST
    By Justin Lahart, CNN/Money Staff Writer

    NEW YORK (CNN/Money) - Jimmy cat cracker, and I don't care.

    Buoyed by some good news on the economic front and easing tensions after the government lowered its terror threat level to yellow from orange, stocks on Wall Street climbed into the green Thursday. News that just a 10-minute walk away, at the New York Mercantile Exchange, oil had made a brief jump to within a whisker of $40 a barrel -- its highest level since the last time the United States was girding for war with Iraq -- was basically ignored.

    But investors would be wise to worry over the steady gains in oil. The price of light sweet crude has nearly doubled from where it was at the beginning of 2002, and just since this year began it's risen 20 percent. Such price spikes raise a big red flag. In the past 30 years there has never been a significant move higher in energy prices that has not been followed by recession.

    The first big oil shock (and the worst) was the result of the 1973 oil embargo by the Organization of Petroleum Exporting Countries. From 1973 to 1974 oil nearly tripled in price. The economy slipped into its longest recession since World War II. Supply disruptions due to the Iranian Revolution led to a spike that brought crude from $15.85 a barrel in April 1979 to $39.50 a year later. In January of 1980, the U.S. economy fell into recession.

    After Saddam Hussein invaded Kuwait in 1990, oil more than doubled, briefly hitting $41.15 in October. Again, recession. And then there was that jump in 2000, when oil went from $25.50 a barrel at the beginning of the year to a high of $36 in November. In March 2001, a recession began.

    The link between energy costs and the economy are direct. When prices go up, businesses and consumers put more of their money into keeping the lights on and keeping their gas tank filled. That leaves them with less to spend, stifling growth. Most economists think that the economy will be able to stave off recession, but they view the recent jump in crude costs with alarm.

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