The latest drone strikes on Saudi Arabian oil-production facilities likely would have a limited direct effect on the U.S. economy, but could result in higher gas prices, potentially exerting an additional drag on slowing global growth, economists say.

While the total impact of the Saturday attacks remains unknown, analysts say the U.S. economy is very different than it was in the 1970s, when surging oil prices tipped the economy into recession. Oil-price shocks no longer pack the same punch, they say.

The rise of U.S. oil production means higher energy prices have a much more muted effect on the overall U.S. economy, said Ryan Kellogg, an economist at the University of Chicago.

On the one hand, higher oil prices would hurt consumers and squeeze businesses that rely on energy to make or transport their products. On the other hand, those losses would be offset by the gains the U.S. oil industry would reap from higher prices.

That industry has been in a funk lately as increased energy production and reduced demand have caused prices to sag. On Friday, crude oil futures closed at $54.82 a barrel, down from $76.41 on Oct. 3, 2018.

The industry’s struggles have contributed to a decline in business investment. Private fixed nonresidential investment fell at a seasonally adjusted annual rate of 0.6% in the second quarter, which weighed on the quarter’s economic growth.

A persistent rebound in oil prices could prompt more investment in oil exploration and drilling. But higher energy prices could also reduce fixed investment in energy-intensive manufacturing industries.

“Ten years ago you’d say unambiguously, if there’s a supply shock in the Persian Gulf, this would clearly be a net negative for the U.S.,” Mr. Kellogg said. “Now it’s much more of a wash than it used to be.”

Continue Reading at The Wall Street Journal…

Areas of Focus: Energy Markets
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Energy Markets
Well-functioning markets are essential for providing access to reliable, affordable energy. EPIC research is uncovering the policies, prices and information needed to help energy markets work efficiently.
Fossil Fuels
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Fossil Fuels
Under current policies, fossil fuels will play an important role in the energy system for the foreseeable future. EPIC research is exploring the costs and benefits of these fuels as...