Published August 23, 2011
The expected ouster of Muammar al-Qaddafi's regime in Libya could provide a needed boost to the U.S. economy, as analysts predict the resumption of oil production will eventually lead to lower prices at the pump, a stimulant for wayward growth.
Libya has the largest oil reserves in Africa, but the fighting since February dried up its output from 1.5 million barrels a day to about 60,000 barrels a day. Gas prices initially soared as a result of the unrest but began edging down recently due to slowing economic growth globally.
In the near term, oil prices appear volatile. After falling Monday, prices were up Tuesday amid confusion over the progress of the rebels and other factors. Qaddafi's son Saif al-Islam, who was earlier said to have been captured, suddenly turned up in Tripoli Monday night to rally supporters. On Tuesday, fighting raged on in the country's capital.
Before the uprising, Libya was the world's 12th largest exporter, delivering more than 1.5 million barrels per day mostly to European markets.
David Kotok, chairman of Cumberland Advisors, wrote in a company post on Sunday that presuming the Qaddafis are eventually vanquished, supply from Libya ramps up and oil prices in world markets fall, the result would be a pay day for the U.S. economy.
"Roughly, a penny drop in the gas price per gallon gives Americans 1.4 billion more dollars a year to spend on other than gasoline. That is a huge stimulant to the economy," he wrote.
"If oil prices continue to head south, that's a real plus for the economy," agreed Mark Zandi, chief economist at Moody's Analytics. "We can take all the plusses we can get at this point."
On Monday, President Obama, addressing the developments from Martha's Vineyard, was careful to emphasize that uncertainty remained and that Qaddafi's regime could still pose a threat.
A reprieve in oil prices could be a boon to voters' views of Obama's handling of the economy , although it's unknown whether the impact would redound to the president's benefit. Obama faulted the Arab Spring with stifling continued growth at home.
While the president's overall approval with the public is above 40 percent in most polls, that number drops to 26 percent in a Gallup poll when it comes to his handling of the economy. By contrast, 53 percent approved of his handling of terrorism.
Democratic strategist Doug Schoen said any ripple effect on Obama's approval from the price of gas would be negligible.
"At this point, his problems are far more substantial than a couple of pennies on gasoline," he said, adding that the progress toward security and democracy in Libya will be more important for Obama.
How long it might take to bring production back up to pre-conflict levels is also a matter of debate.
Wood Mackenzie, an oil consulting firm headquartered in Edinburgh, Scotland, predicted it could take three years while NUS Consulting in New Jersey issued a more optimistic assessment forecasting full production by the first half of next year.
Regardless of the forecasts, energy consulting firm Cameron Hanover, based in Connecticut, issued a report that said pressure to ramp up production will be "overwhelming" since a new regime would be dependent on oil revenues.
"In order for this new democracy to attract enough support, it will need to get oil flowing right away," it wrote.
Infighting among the various factions that would compose a new government in Tripoli as well as damaged infrastructure could slow that process, dampening any short-term effect a Qaddafi ouster would have on oil prices.
Gas prices in the U.S. have fallen slightly since May, when global economic stagnation weakened demand, but pump prices are still just under $3.60 per gallon nationally. A year ago, the price of a gallon of regular was $2.71.
The Associated Press contributed to this report.