The unknown unknowns have come to the fore. Political problems in the Middle East have thrown forecasts for the world economy and all sectors of manufacturing, including high-tech, into a funk over skyrocketing oil prices.
Until Libya erupted, the impact of political upheavals in the Middle East had been limited to the displacement of despots in Egypt and Tunisia, but as crude oil prices have soared at a double-digit clip in only the last week, it's beginning to dawn on everyone that the global economy could be at significant risk this year.
I can't think of a single political prognosticator, forecaster, economist, or corporate executive who foresaw events now taking place in the Middle East and factored this into their outlook for 2011 or made plans for how these developments might affect their operations or the global economy. That's why I called them the “unknown unknowns,” borrowing a phrase from former US Defense Secretary Donald “Rummy” Rumsfeld.
We are now beginning to see how the Middle East might throw a monkey wrench into carefully laid-out plans for individuals, businesses, and governments worldwide. Oil prices have risen quickly, with crude oil delivery terms shooting past the $100 per barrel level for the first time in more than two years, topping $120. Although prices have since declined after several countries, including Saudi Arabia, assured the market they would compensate for limited deliveries from Libya by raising production, crude oil prices are still more than 12 percent above where they were only two weeks ago.
I wouldn't trust the House of Saud to help deliver the world from the economic mess that may result from higher oil prices. Saudi Arabia itself has not experienced any outward signs of political disturbance, but deep rumblings beneath the surface might still trigger an explosion that could dispel the idea that peace reigns in the kingdom. If crude oil prices could rise double-digits because of supply disruptions from Libya — the world's 12th-largest exporter — imagine the impact on the world economy of problems in Saudi Arabia.
The blowout is already huge. Transportation costs are going up as logistics services providers try to pass higher fuel costs to customers, hurting companies that rely on air freight to ship products from manufacturing centers in Asia to consumers in the West.
Consumers in Western nations are especially at risk. Only yesterday, regular gasoline retailed for about $3.09 per gallon in my area, but by this morning the price had shot up to $3.39. That's bad news for consumers and manufacturers alike. After filling my tank this morning, for instance, I began having second thoughts about the Motorola Xoom computing tablet I was hoping to buy. Yes, I'll probably still buy it but may delay the purchase for several more months. Why? It's not a necessity. I can still get by on my PC and BlackBerry.
Many other consumers may have similar thoughts, which will likely hurt the sales of high-tech items like PCs, smartphones, and computing tablets. At the corporate level, expect companies to take a second look at capex budgets and perhaps even further slow down hiring. Already tight government spending may come under pressure as well, impeding infrastructure spending, which many high-tech companies rely on to boost sales when consumer penny-pinching lowers demand for products.
It's not all doom and gloom, however. The sharp rise we've seen in recent weeks in crude oil prices may not last longer than a few weeks or months. The optimist in me wants to believe leaders like Muammar al-Gaddafi will soon be swept out of power, and calm can return to the Middle East. However, the more logical part of me also knows that the departure of leaders like this does not immediately lead to dramatic transformation and peaceful coexistence among nations. Their departure only brings to the surface the damage they've done to their nations and thereby the hard work that must be done to rebuild, repair, and help those countries rejoin the global community as peaceful players.
Events like this play out, not in weeks or months, but often in years. We may be in for a rough ride.