Libya, Japan crises could rock the economy

NEW YORK — The punishing allied airstrikes in Libya, coupled with the continuing nuclear crisis in Japan, threaten to push high oil prices even higher and undermine the fragile economic recovery in the United States and abroad.

If nothing else, some economists and market watchers warn, the volatility and uncertainty of both crises could cut into corporate and consumer balance sheets and shave enough off economic growth to help tip economies back toward recession.

Fears persist that Libyan leader Muammar Qadhafi could set fire to his country’s oil fields, which had been pumping about 1.6 million barrels a day before the country’s unrest turned into civil war, drawing U.S. and allied intervention.

And it’s not just Libya that’s stirring concern. Unrest has been growing in Yemen and other countries throughout the oil-producing region.

The biggest threat might be that turmoil will erupt in Saudi Arabia, a major U.S. oil supplier that pumps about 9 million barrels a day. A big drop in production there would certainly send U.S. gasoline prices, already nearing $4 a gallon in most places, skyrocketing.

“The fear factor may return with regard to Saudi Arabia,” said James Rickards, managing director of market intelligence for Omnis. “It is surrounded by Egypt (unstable), Yemen (unstable), Bahrain (unstable) and Iran (antagonistic). That story will play out over weeks and months, not necessarily days.”

“With reports of protests in Syria and Yemen, hostilities at the Gaza-Israel border and Saudi troops in Bahrain, the risk of political contagion remains,” Goldman Sachs analyst David Greely wrote in a recent report.

Then, there’s the pressing matter of the Japanese earthquake and tsunami and resulting nuclear crisis and massive rebuilding effort ahead.

Additionally, significant interruptions to the global supply chain remain. Sony said Tuesday that shortages of parts and materials would cause it to close five more Japanese plants.

Already, the Japanese crisis has impacted U.S. automobile and airplane manufacturers. GM had to halt production at a plant in Louisiana, and Nokia and other mobile-phone makers are warning of supply chain disruptions.

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