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A framework analyzes sectoral and regional impacts, identifies areas likely to be hurt or benefit, and argues the current shock will be less severe than previous ones.",{"@graph":14,"@context":73},[15,34,56],{"@type":16,"itemListElement":17},"BreadcrumbList",[18,23,27,31],{"item":19,"name":20,"@type":21,"position":22},"https://docshare.wps.com","Home","ListItem",1,{"item":24,"name":25,"@type":21,"position":26},"https://docshare.wps.com/document/","Document",2,{"item":28,"name":29,"@type":21,"position":30},"https://docshare.wps.com/document/research-report/","Research & 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discussed in the document?","Question",{"text":63,"@type":64},"The document links the shock to Iraq's August 2 invasion of Kuwait, which caused crude costs to surge as high as $41 a barrel before later moderating.","Answer",{"name":66,"@type":61,"acceptedAnswer":67},"What framework does the document use to analyze oil shock impacts?",{"text":68,"@type":64},"It evaluates three factors: oil's share of firms' total costs, the ease of substituting other inputs for oil, and consumers' ability to switch products if prices rise.",{"name":70,"@type":61,"acceptedAnswer":71},"Which sector is expected to be hit most severely and why?",{"text":72,"@type":64},"Transportation is expected to be hit hardest because it accounted for about 63% of U.S. oil consumption in 1989 and has limited short-run opportunities to switch to alternative 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shock.Since Iraq'sAugust 2 invasion of Kuwait,the cost ofcrude has soared as high as $41 a barrel.And although prices have since moder-ated,they continue to exceed the pre-invasion level.The U.S.economy hasalready begun to register adverse effects,as risingenergy costs have contributed tothe economic slowdown and a general in-crease in prices.Furthemore,heighteneduncertainty about future oil prices and theprospects for war in the Persian Gulfcould weaken the economy even more assome fims reduce,delay,or cancel proj-ects in the face of these added risks.  \nAlthough the sluggish economy hastouched almost every region and busi-ness sector,some have been hit harderthan others,while a few have actuallybenefited.Oil producers in Texas andAlaska,for example,have enjoyed in-creased revenues from the doubling ofcrude prices,while New Englanders havehad to brace for escalaing home heatingcosts.This Economic Commentary pro-vides a framework for analyzing theregional and sectoral effects of higher oilprices,identifying those areas most likelyto be hurt and those that might benefit.Italso presents evidence that the impact ofthe current oil shock will not be as severeas that of previous ones.  \n## ■ A General Framework\n\nOil is essential to industrialized econ-  \nomies,both as an input in many produc-  \n# The Sectoral and Regional Effectsof Oil Shocks:Who's over a Barrel?\n\ntion processes and as a major source ofenergy.Three factors determine the in-fluence that an oil price shock will haveon firms and,ultimately,on sectors andregions:1)oil's share of fims'totalcosts,2)the ease with which firms cansubstitute other inputs for oil(for exam-ple,by purchasing more fuel-efficientcapital equipment or by altering produc-tion techniques),and 3)consumers'abil-ity to switch to other products if a firmattempts to raise its prices  \nThe importance of these factors is illus-trated by current dfficulties facing theairline industry.Oil price shocks tend tohit the airlines faster and harder thanmany other industries because airlinesbuy oil on the spot market,and oil com-prises one-fifth of the industry's totalcosts.Also,there are few opportunities tosubstitute other inputs for jet fuel.'Com-pounding the injury is the fact that oilshocks tend to be followed by a generallyweakened economy and a consequentdrop-off in the demand for air travel,making it difficult for airlinesto recouptheir higher costs through increased fares  \n## ■ Oil Usage by Sector\n\nIn order to examine the differences in oilconsumption across industries,wedivide the economy into five sectors:transportation,industrial,residential,commercial,and electric utilities.Ofthese,transportation will probably be hitmost severely by the current oil shock,because the industry accounted for al-  \nJanuary 15,1991  \nAlthough rising oil prices have a netnegative impact on the U.S.economy,certain regions and business sectorssuffer disproportionately,while othersactually benefit.This article examinesthe regional and sectoral effects ofhigher-priced oil,citing evidence thatthe current shock will have less of animpact on overall economic perform-ance than previous shocks have had.  \nmost 63 percent of all oil consumed inthe United States in 1989-—more thanthat of the other three sectors combined—and because the short-run opportu-nities for switching to altemative fuelsare so limited (see figure 1).  \nHigher oil prices may also induce signif-icant movements of cargo and passengersfrom less-fuel-efficient to more-fuel-efficient modes of transportation,such asfrom truck to rail and from private auto-mobiles to public transportation.Becausemost industries and consumers dependon transportation services,the price in-creases in this sector also affect otherareas of the economy.  \nAlthough the industrial sector accountsdirectly for about 25 percent of all U.S.oil consumption,a price shock shouldhave less impact there than on t","cbCainZ7imDZIRQS","https://ap.wps.com/l/cbCainZ7imDZIRQS","pdf",1164105,"English","# A General Framework\n# Oil Usage by Sector\n## Regional Variations in Oil Usage","[{\"question\":\"What triggered the oil price shock discussed in the document?\",\"answer\":\"The document links the shock to Iraq's August 2 invasion of Kuwait, which caused crude costs to surge as high as $41 a barrel before later moderating.\"},{\"question\":\"What framework does the document use to analyze oil shock impacts?\",\"answer\":\"It evaluates three factors: oil's share of firms' total costs, the ease of substituting other inputs for oil, and consumers' ability to switch products if prices rise.\"},{\"question\":\"Which sector is expected to be hit most severely and why?\",\"answer\":\"Transportation is expected to be hit hardest because it accounted for about 63% of U.S. oil consumption in 1989 and has limited short-run opportunities to switch to alternative fuels.\"}]","The Sectoral and Regional Effects of Oil Shocks: Who's over a Barrel? | PDF",1789969213,13]