Roubini : Israel attack on Iran and the gas prices

Nouriel Roubini : I'm not the geopolitical expert and I will let Ian and others figure out the probability of an attack on Iran this year before the U.S. election or after the election -- or of an Israeli attack alone. Whether it's 20 percent, or 30 or 50 -- I think that view will change over time. But it's likely that the second quarter of 2012 is going to be the period when final round of giving a chance to diplomacy is going to be attempted. If that fails, maybe at that point both the U.S. and Israel are going to say, "Unless you back down, we may eventually attack you." So you have to time how much these things are going to affect markets. But even without an attack outright, there's a war of words between the U.S., Israel, and Iran, and this war of words has been escalating. There is also a covert war, because Israel and the U.S. allegedly have been killing some of the scientists, engaging in sabotage through cyberwarfare, and now Iran is reacting. They've tried to kill a bunch of Israeli diplomats around the world and, if sanctions become more binding, they could start making noises about other threats. Brent [Crude] that used to be $90 per barrel is already in the $120-125 range. But if that war of words and covert war escalates, there's a possibility that -- even short of a military confrontation -- oil prices could become high enough that it becomes material for the economy. I would not underestimate the effect of gasoline today, in a number of U.S. states, being already at $4.00 a gallon -- and it could be so in many other states. Psychologically, once you're above the $4 mark, it has an impact on consumer confidence. And in the summer, prices tend to go up another 20 or 30 cents. The higher those oil prices are, the higher the chance that has a negative effect on consumer confidence, on disposable income, and on the economy. And it's not just in the U.S. -- the price of oil is very high in Europe and in many other parts of the world. So I would let other people assess the risk of a conflict, but confidently I see oil prices from here going higher, rather than lower. The one thing I worry about more than the eurozone is oil. - in foreignpolicy.com