Greenspan says impact of war on oil prices would depend on duration
Federal Reserve Chairman Alan Greenspan said the impact of war with Iraq on oil prices would depend on how long hostilities lasted.
"How military action, if it occurs, impacts on the price of oil is obviously a function of how long it takes," Greenspan said in answering a question about a potential war with Iraq on oil prices and the economy at a House Budget Committee hearing.
"It would surprise me" if a recession developed from a spike in oil prices resulting from war with Iraq, he said, because of the declining importance of oil in the economy.
"I don't think the effect of oil as it stands at this particular stage is large enough to impact the economy, unless the hostilities are prolonged."
"Then we could run into difficulties," he said.
He noted that the amount of oil used in the US per dollar of GDP has been coming down for years.
Therefore, a sharp increase in oil prices "shouldn't have as large an effect as it did in the past."
While history shows that spikes in oil have preceded recessions in the past, Greenspan said that "we think that's accidental."
He also suggested that President George Bush should not take into account the economic impact when deciding how to deal with the alleged security threat posed by Iraq.
"Issues of foreign diplomacy and military strategy really ought not to take into consideration what the impact on the American economy is," he said, although "we do obviously need to know that as we go on."
