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Oil Shock 2?

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"We're having a replay of the 1970s without the Arab oil embargo part, so it's been hard for many people to see," says Amy Myers Jaffe, an energy scholar at the Baker Institute at Rice University in Houston.

Even with US airlines cutting flights and SUV sales now tanking, the effects of expensive oil on the American family could be stark, Wescott's report says.

In 2003, with oil approaching $40 per barrel, the average US family spent about $1,900 (4.8 percent of its income) on natural gas, heating oil, and gasoline. But today at the $120 per barrel level, a family will spend about $6,000 a year or about 15 percent of total annual income, Wescott's report predicts.

Compared with the oil crises of the 1970s, the US paradoxically is in a bit better, yet also worse, position. The good news is the US economy is less energy intensive – using only about half the energy it did in the 1980s to produce a dollar of economic growth. That should make it more resilient.

But the bad news is that imported oil has risen to about 12 million barrels a day, about 60 percent of the 21 million barrels the US consumes daily. That financial drain at $120 per barrel is jamming the brakes on the US economy and inflating the trade deficit, economists agree. "The question now isn't whether we're going into recession, it's whether there will be a soft landing ... or we have a hard landing," Ms. Jaffe says.

Nariman Behravesh, chief economist at Global Insight, Lexington, Mass., has done economic projections with oil at even higher prices. While oil at $120 a barrel "makes a mild recession a little deeper," the results of oil at $150 would be much worse with the nation "looking at a fairly serious recession."

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