Why Libya can scare the economy

This story was originally covered by PRI’s The Takeaway. For more, listen to the audio above.

Turmoil in Libya is a political problem. It’s a human rights problem. It’s also an economic problem. Libya produces some 1.6 million barrels of oil each day, making it the 3rd biggest oil producer for Africa. The longer the political unrest goes on in Libya, the worse it is for the economy.

Most of the oil from Libya goes to Europe, but that won’t protect the United States. “The whole economy — and oil market — is interconnected,” Louise Story, economics correspondent for The Takeaway explained, “So of course if there is less oil for Europe, they’ll be trying to buy some of the oil that goes to the US.” A jump in oil prices in Europe means a jump in oil prices everywhere.

At the heart of the problem lies fear and uncertainty, according to Story. The actual amount of oil available for the economy hasn’t changed drastically. But markets react to the fear of “what if this spreads elsewhere.”

The information coming out of Libya is sparse, in part because journalists have been banned from the country. ” We don’t really know even which oil companies have shut down,” Story says, “because reporters can’t get in there.”

“The stock market really dislikes uncertainty,” Story says, “and this is a very uncertain situation.”

If oil prices stay high, or go higher, it could seriously hurt the US financial recovery. “It’s a very fragile economy right now,” Story says. Much of the economy is dependent on oil, so higher oil prices could raise the cost of everything. That could seriously hurt consumers.

“The bottom line is the last thing the US consumer needs is to go to the gas pump and see prices going back up to where they were in 08 and see their heating bills going up,” Story says. “This is the kind of factor that could throw the recovery off.”

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“The Takeaway” is a national morning news program, delivering the news and analysis you need to catch up, start your day, and prepare for what’s ahead. The show is a co-production of WNYC and PRI, in editorial collaboration with the BBC, The New York Times Radio, and WGBH.