The Sectoral and Regional Effects of Oil Shocks: Who's over a Barrel?

Once again the United States has been jolted by an oil price shock. Since Iraq’s August 2 invasion of Kuwait, the cost of crude has soared as high as $41 a barrel. And although prices have since moderated, they continue to exceed the preinvasion level. The U.S. economy has already begun to register adverse effects, as rising energy costs have contributed to the economic slowdown and a general increase in prices. Furthermore, heightened uncertainty about future oil prices and the prospects for war in the Persian Gulf could weaken the economy even more as some firms reduce, delay, or cancel projects in the face of these added risks.