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The price of gas averaged $3.51 last year, so a move above $4 should only divert $60 billion from consumer spending this year, Riccadonna says. Last year, it drained an estimated $120 billion. "It's really a two-horse race," Riccadonna says. "There's rising energy costs, and then there is households' ability to handle those rising costs." So far, households appear to be keeping up. Economists think the economy will grow at a 2.2 percent annual rate in the first half of this year, compared with 0.9 percent while gas prices crept up in the first half of last year. An oil shock would change everything. The scenario making the rounds on Wall Street starts with Israel bombing Iran's nuclear facilities. Analysts expect Iran would retaliate by trying to block access to the Persian Gulf, an attempt to pull 20 percent of the world's oil supply off the market. In the event of a blockade, oil would skyrocket -- think $150 or beyond
-- easily topping the record of $145 set in 2008. "That's the wild card," says Kelly of J.P. Morgan. "That's the really big `What if?'" Some economists believe oil and gas prices are already nearing a danger zone. If gas exceeds the all-time high of $4.11, they say, Americans will think twice about a trip to the restaurant. "We're getting close to a point where we should start worrying," says Thomas Simons, a market economist at Jefferies & Co. "People hate paying for gas. You get no pleasure out of it, unlike food or clothes." If gas goes to $4.50 a gallon and stays there, it would cost each household about $1,000 more this year than last to buy the same amount of gas. That would eat half of the $2,000 savings a typical household will get from this year's cut in Social Security taxes. It would also land a hard psychological blow, Kelly says. Jumps in oil and gas prices triggered recessions in 1973 and 1990, and gas prices last peaked months before the financial crisis shook markets in 2008. Kelly says another spike could lead many Americans to worry that history will repeat itself. "Americans have a fuzzy grasp on most economic matters," he says, "but one thing they're clear on is that high gas prices are a danger sign."
[Associated
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