As civil unrest spreads through the Middle East, investors continue to fear that political change in the region could disrupt the world's economies.
Weeks after protests began in Tunisia and Egypt, violence erupted in Bahrain Thursday morning, as riot police assaulted demonstrators. If the upheaval continues to intensify, and if the region's oil supply is disrupted, rising oil prices could drain consumers' resources, put jobs at risk and threaten global economies, experts say. But investor fears seem to extend beyond even that prospect.
Even as the U.S. economy shows promising signs of recovery, some investors are behaving as if dark days were at hand.
"You have a convergence of economic fears that were already there," said Jeffrey Garten, a professor of international trade and finance at Yale, and a former undersecretary of commerce for international trade in the Clinton Administration. "On top of that, now there are these fears of the unknown -- how is the political ball going to bounce? All of that drives up commodity prices even more."
A disruption in the Middle Eastern oil supply could indeed pose a serious threat to the global economic recovery. If the price of a barrel of oil were to rise by $10.70 -- or roughly 10 percent -- and stay there for a year, the American economy would lose 270,000 jobs, according to a recent simulation produced by IHS Global Insight. As prices would rise at the gas pump, and as the transportation of goods would become more expensive, consumers would feel the squeeze.
The price of oil has been rising since the protests began, leaving investors to weigh the probability of calamity in the region. On Wednesday, the price of Brent crude oil, an industry benchmark, rose above $104, to hit its highest level since September 2008. Back then, a summer of record-high oil prices -- nearly hitting $150 a barrel -- helped drag the economy into recession.
A repeat of such a price spike could be devastating.
"The economic recovery would probably remain intact, although the risks would be very high," said Mark Zandi, chief economist at Moody's Analytics. "If it went up to $150 and stayed there for the rest of the year, then all the benefit of the tax cut deal would be wiped out."
As Iranian warships are reportedly trying to pass through Egypt's Suez Canal, investor behavior reflects a general sense of foreboding. The price of gold, which enjoyed a historic rise and then a decline late last year, is climbing once again.
The fears driving this desire for gold may be overblown, economists say. Investors generally buy gold when they are worried about inflation, fearing that paper money will lose value. Right now, that doesn't seem to be a risk, said Mark Weisbrot, co-director of the Center for Economic Policy and Research, in Washington.
"All the catastrophe theorists love gold," he said. "Gold has its own dynamic that's separate from all the other commodities."
Inflation could, in theory, stem from a variety of sources. The prices of all sorts of commodities, including foodstuffs and cotton, have risen dramatically over the past year, and they've climbed ever higher in recent weeks, apparently on fears that Middle Eastern unrest could disrupt trade. Under pressure, food producers in rich countries like the U.S. might pass this higher cost onto consumers, but such increases are small, economists say.
Higher costs of commodities pushed prices slightly higher in January, as the consumer price index, a measure of inflation, rose 0.4 percent. Over the past few months, inflation has been at historic lows.
The principal economic risk emerging from Middle Eastern unrest seems to be a potential disruption in the oil trade. Inflation just isn't much of an issue, Harvard economist Kenneth Rogoff said.
"Any effect on inflation is extremely indirect. It would more be something that destabilized the global economy in general, and inflation ended up being a byproduct," he said. "Oil is the most conspicuous economic risk, but it's hard to know."
Still, investors are apparently nervous. Some risks associated with the Middle Eastern protests could be wholly unforeseen.
"What may look like an isolated thing in Egypt or Bahrain is actually putting coal on a fire," Garten said. "It's the coal that represents unknown political factors. How bad will this get? And of course, nobody knows."