Crude oil futures for April delivery are around $100 a barrel. | REUTERS Soaring oil prices may hurt recovery

It seems that threats to the fragile economic recovery multiply by the day.

In addition to the looming possibility of a government shutdown and of a debt default if Congress does not raise the borrowing limit, the economy now has to deal with the prospect of serious, enduring spikes in oil and gasoline prices.


Crude oil futures for April delivery are hovering around $100 a barrel as investors fear that unrest in the Middle East will continue to impede the flow of oil from Libya and could spread to Saudi Arabia and other larger producers.

Gasoline prices in turn have risen sharply. According to AAA, the average price on Tuesday was $3.38 a gallon. And some fear prices could be headed back above the record high of $4.11 in July 2008.

A year ago, prices were around $2.65.

On Tuesday, Federal Reserve Chairman Ben Bernanke told Congress that fuel prices were not yet a serious threat.

“The increases that we have seen so far, while obviously a problem for a lot of people, do not yet pose a significant risk either to the recovery or to the maintenance of overall stable inflation,” he said. The Fed, he added, would “monitor” the situation.

Many economists have endorsed Bernanke’s view that oil prices do not yet pose a grave danger to an economy still struggling from the recession.

But they suggest that if prices go significantly higher — a certainty if the monarchy falls in Saudi Arabia — the U.S. could tip back into recession.

In a recent study, Goldman Sachs economists concluded that “a 10 percent rise in the price of oil [if sustained] could reduce U.S. GDP growth by 0.2 percent in the current year and 0.4 percent in the subsequent year due to lower personal consumption, business fixed investment and inventory accumulation.”

Goldman also found that “Middle East contagion raises the risk of higher oil prices” and that “while still low, the risk of civil unrest spreading to the large energy producers in the Gulf from Libya has grown, creating further upside risk.”

Already, the unrest in the Middle East and rising oil prices have changed the nature of the debate on domestic drilling.

Just this week, the Obama administration issued the first deep-water drilling permit since the BP oil spill last year in the Gulf of Mexico.

Shares in many oil companies rose after the decision to grant a permit to Noble Energy on the belief that more will be issued later.

This belief is bolstered by the idea that President Barack Obama does not want to run for reelection next year with gasoline prices near $4 a gallon. Because that’s the point at which studies suggest the price begins to seriously pinch consumers’ wallets and affect their votes.