The catastrophic hurricane that hit New Orleans and the U.S. Gulf of Mexico coast is certain to have a large economic impact. Experts are compiling their preliminary estimates of the storm's cost.
Early estimates put the damage at, at least, $25 billion with the biggest economic casualty being the U.S. oil and gas industry.
The Gulf coast of the United States is a major oil and gas producing region with dozens of offshore platforms and 22 refineries. All of them, for the moment, are out of service. By some accounts, a quarter of all U.S. gas and oil supplies come from the Gulf coast.
To make up for the production losses, Energy Secretary Samuel Bodman announced the government is making an emergency release of supplies from the U.S. strategic petroleum reserve.
"We have made a decision, which the president certainly strongly supports, to tap into the strategic petroleum reserve in order to relieve any pressure on any refiner that is having difficulty getting access to crude oil," he said.
The vast strategic reserve of crude oil stored in underground salt mines was created in response to the Arab oil embargo of the 1970s. The release of U.S. crude had a quick, but mild, depressing impact on what have been steeply rising oil prices.
On Monday the price of crude oil topped $70 a barrel for the first time. Crude oil prices have more than doubled in the past 18 months.
London energy economist Julian Lee told Bloomberg News that markets welcome the release of U.S. strategic reserves.
"It will certainly alleviate a great deal of the fear of a potential loss of production from Gulf of Mexico oil fields," he said. "The problem that it will not address and cannot address, of course, is any damage that might have been sustained by oil refineries in the Gulf coast region. The strategic petroleum reserve is a reserve of crude oil and not of refined product."
Gasoline will likely be in short supply in some parts of the United States, putting upward pressure on prices that in recent weeks had already soared to record high levels.
White House economist Ben Bernanke says the disaster is likely to have only a modest impact on the U.S. economy, which has been growing at a healthy rate of more than three percent annually.
But other economists are pessimistic. They note that 20 percent of all U.S. trade passes through Gulf of Mexico ports. New Orleans is a major center for U.S. exports of coal, rice, and grain, and a major entry point for coffee, chemicals, paper, and steel.
Shortages and price increases for a number of commodities are expected. Most of all, there is concern that $70 a barrel oil and three dollars for 3.8 liters of gasoline could tip what has been a vibrant economy into recession.
Economist Alan Rifkin, of Lehman Brothers in New York, told Bloomberg News that he will be watching consumer confidence numbers to measure the market impact of the disaster.
"I certainly do think that over the next couple of months, due to the hurricane and more importantly due to higher energy prices, we may actually see those confidence levels wane a little bit," he said.
The full economic impact of hurricane Katrina is unlikely to be known until the final three months of this year.
