Matt O’Brien

Oil price keeps rising as industry eyes Iran-US conflict

PROVIDENCE, R.I. (AP) — The global benchmark for crude oil rose to more than $70 a barrel on Jan. 6 for the first time in over three months, with jitters rising over the escalating military tensions between Iran and the United States. The Brent contract for oil touched a high of $70.74 per barrel, the highest since mid-September, when it briefly spiked over an attack on Saudi crude processing facilities. Stock markets were down as well amid fears of how Iran would fulfill a vow of “harsh retaliation.” “The market is concerned about the potential for retaliation, and specifically on energy and oil infrastructure in the region,” said Antoine Halff, a Columbia University researcher and former chief oil analyst for the International Energy Agency. “If Iran chose to incapacitate a major facility in the region, it has the technical capacity to do so.” Still, many analysts say they see little cause for concern about damage to the U.S. economy resulting from the jump in oil prices. Some note that higher energy prices can actually benefit the overall economy because the United States is now a net exporter of petroleum products. And the Federal Reserve’s commitment to low interest rates means the Fed is unlikely to raise rates anytime soon to counter any inflationary effects from higher oil prices. But economists caution that an escalation in the Trump administration’s confrontation with Iran could pose new risks to the economy in the long run. The U.S. killed Iranian Gen. Qassem Soleimani in Iraq on Jan. 3. Early Jan. 5, as Iran threatened to retaliate, President Donald Trump tweeted the U.S. was prepared to strike 52 sites in the Islamic Republic if any Americans are harmed. Fears that Iran could strike back at oil and gas facilities important to the U.S. and its Persian Gulf allies stem from earlier attacks widely attributed to Iran. The U.S. has blamed Iran for a wave of provocative attacks in the region, including the sabotage of oil tankers and an attack on Saudi Arabia’s oil infrastructure in September that temporarily halved its production. Iran has denied involvement in those attacks. “Targeting oil infrastructure could raise prices and bring worldwide economic pain and put Iran on the front burner,” which might be exactly the kind of message its leaders are looking to send, said Jim Krane, an energy and geopolitics researcher at Rice University. Analysts noted that American households devote a smaller proportion of their spending to energy bills than in the past. That is in contrast to previous periods, when a surge in oil prices often preceded recessions. The proportion of their spending that U.S. consumers devote to energy has fallen to a historic low of 2.5 percent, down from more than 6 percent in the early 1980s, economists at Credit Suisse noted in a research report. “A global supply shock would be an unwelcome development, but we would not expect it to lead to an imminent recession,” the economists wrote. “There have been several dramatic shifts which ought to make the U.S. economy resilient to rising oil prices. Strong household balance sheets, an accommodative Fed and a large domestic energy sector reduce the risks that an oil shock tips the economy into recessions. Though the U.S. economy can better withstand a jump in oil prices than it once could, the global economy is still vulnerable. “Higher oil prices are still very much a negative for the global economy, and that will reverberate back on us,” said Mark Zandi, chief economist at Moody’s Analytics. Sung Won Sohn, economics and business professor at Loyola Marymount University, said that if the current crisis were to escalate into a much bigger confrontation, it would represent a potentially serious threat: “If the situation does not escalate beyond the current level, i would say this will be a minor hiccup for the economy. But if it becomes a war and the Strait of Hormuz is closed, then we are looking at a major economic problem.” Compared to other methods of attack, targeting energy sites also “doesn’t kill a lot of people,” Krane said. “It’s capital-intensive, it’s not people-intensive. It’s a safer option in terms of the virulence of reprisal.” It would still wreak havoc on the global economy, he said, because of the way that oil markets affect other energy-intensive industries such as airlines, shipping and petro-chemicals. Global stock markets have been sliding since Jan. 3. European indexes were down more than 1 percent on Monday after Asia closed lower. Wall Street was expected to slide again on the open, with futures down 0.6 percent. Brent crude was up $1.07 at $69.67 per barrel, putting it up almost 6 percent since before the Iranian general’s killing. At the same time, experts say the effect of a Middle Eastern geopolitical crisis on oil prices isn’t as great as it once was. The U.S. energy industry can ramp up shale oil production in places such as Texas, for example. “We’re in this new territory where the world oil markets are more dynamic and can tolerate this disruption more than they used to,” said Michael Webber, a mechanical engineering professor at the University of Texas at Austin. Tensions between the U.S. and Iran have steadily intensified since Trump’s decision to withdraw from a 2015 nuclear deal and restore crippling sanctions. But after the attack on Saudi Arabia’s crucial Abqaiq oil processing facility in September, Halff said the “market was able to dismiss it pretty quickly, partly because there was a perception that shale oil was pretty abundant.” After that incident, the price of oil surged over 14 percent in a day, but lost those gains over the next two weeks. Halff said the killing of Iran’s top general is different. “This is not something that can be repaired,” he said. “You can repair a facility. You can’t bring somebody back to life. There’s no turning back.” AP economics writer Martin Crutsinger in Washington contributed to this report.

Congress grills Big Tech over competition, money and power

Big Tech faced tough questions last week as federal lawmakers focused on issues of potentially anticompetitive behavior by technology giants and expressed bipartisan skepticism over Facebook’s plan for a new digital currency. Companies such as Apple, Google, Facebook and Amazon have long enjoyed nearly unbridled growth and a mythic stature as once-scrappy startups — born in garages and a dorm room and a road trip across the United States — that grew up to dominate their rivals. But as they’ve grown more powerful, critics have also grown louder, questioning whether the companies stifle competition and innovation, and if their influence poses a danger to society. Both Democrats and Republicans had grievances to air, even if there wasn’t much consensus on what to do about them. A July 16 panel of the House Judiciary Committee focused on whether it’s time for Congress to rein in these companies, which are among the largest on Earth by several measures. Central to that case is whether their business practices run afoul of century-old laws originally designed to combat railroad and oil monopolies. For some legislators, mostly Democrats, those laws are in need of updates or at least more stringent enforcement. Ultimately such action could lead to breaking up big online platforms, blocking future acquisitions or imposing other limits on their actions. Subcommittee chairman David Cicilline, a Rhode Island Democrat, charged that technology giants had enjoyed “de facto immunity” thanks to current antitrust doctrine, which typically equates anticompetitive behavior with higher prices for consumers. That allowed them to expand without restraint and to gobble up potential competitors, he argued, creating a “startup kill zone” that prevents smaller companies from challenging incumbents with innovative services and technology. A panel of four mid-level executives from the companies countered that their firms continue to innovate, that they face vigorous competition on all fronts — including from one another — and, perhaps most of all, that they were not monopolists in any way, shape or form. Facebook, for instance, has argued that it is not a monopoly because it has many competitors in businesses as diverse as private messaging, photo sharing and online advertising. So Democratic Rep. Joe Neguse of Colorado asked Facebook’s head of global policy development, Matt Perault, to name the world’s largest social network by active users. (It is Facebook.) When Perault said he couldn’t, Neguse ticked off four of the six largest — Facebook, Facebook Messenger, Instagram and WhatsApp — and had Perault verify that all are owned by Facebook. “We have a word for that and that word is monopoly, or at least monopoly power,” Neguse said. The company representatives didn’t help their case by pleading ignorance on multiple occasions. Google’s director of economic policy, Adam Cohen, said he was “not familiar” with how much Google pays Apple for the right to supply the default search engine for Safari on iPhones. (Rep. Jamie Raskin, a Democrat from Maryland, said it was $9 billion in 2018 and $12 billion in 2019.) Cohen also said he was “not familiar” with allegations of widespread fraudulent listings on Google Maps. Amazon also faced some pointed questioning. Cicilline asked Nate Sutton, an associate general counsel at the online retailer, whether it uses the data it collects about popular products to direct consumers to Amazon’s own in-house products. Sutton said the company doesn’t use third-party sellers’ data to “directly compete” with them. Cicilline, affecting disbelief, twice reminded Sutton that he was under oath. “Amazon is a trillion-dollar company that runs an online platform with real-time data,” he said. Expert witnesses suggested it might be time to reassess antitrust policy. Timothy Wu, a law professor at Columbia University who has advocated for more expansive antitrust enforcement, noted concerns about a fall in the number of startups being formed, and wondered aloud whether the U.S. will remain a place where startups thrive and launch new industries. Fiona Scott Morton, a Yale economics professor, argued that stifled competition has hampered innovation and hurt both smaller businesses and consumers, who have no choice but to surrender their privacy and watch more advertising. Others, mostly Republicans, rejected what they described as a big-is-bad approach in favor of keeping antitrust enforcers narrowly focused on protecting consumers when there’s clear evidence of harm such as price gouging. Attorney Maureen Ohlhausen, a former Republican commissioner and acting chairwoman of the Federal Trade Commission, said the government can still protect against anticompetitive behavior without “reducing the focus on consumer welfare.” She warned against “drastic” steps such as breakups that carry “serious risk of doing more harm than good for competition and consumers.” Earlier on July 16, a Facebook executive appeared before a Senate panel to defend the company’s ambitious plan to create a digital currency and pledged to work with regulators to achieve a system that protects the privacy of users’ data. David Marcus, who leads the Libra project, faced sharp criticism from both Democrats and Republicans. “Facebook is dangerous,” asserted Sen. Sherrod Brown of Ohio, the committee’s senior Democrat. Like a toddler playing with matches, “Facebook has burned down the house over and over,” he told Marcus. “Do you really think people should trust you with their bank accounts and their money?” Republican Sen. Martha McSally of Arizona said “the core issue here is trust.” Users won’t be able to opt out of providing their personal data when joining the new digital wallet for Libra, McSally said.
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