Econintersect: Prof. James D. Hamilton, University of California, San Diego, has conducted research on the role of oil supply shocks and the onset of economic downturns. There has been a correlation of supply disruptions and the start of recessions. However, Prof. Hamilton says there has been a threshhold of loss of production that was necessry to start a recession and the Libyan situation falls short of that.Prof. Hamilton also points out that having seen $4 gasoline prices in 2008, a temporary surge above that price would not have the dampening effect on consumer sentiment that it had the first time. Consumers have been conditioned.
Hamilton does go on to say that if oil production was disrupted elsewhere in the middle east the impact could be sufficient to create a supply shock sufficient to start a downturn. But Libya by itself will not have that affect.
Source: GEI Analysis Blog