How Long Before Oil Prices Drag Down The Economy?

It's a question that begs to be asked. If oil prices - and by extension gas prices - keep rising, at what point does that pull the rug from our feeble economic recovery?

Gasoline prices are now over $3.50 a gallon, 75 cents a gallon more than at this time last year. That means for the average 20-gallon fill-up, motorists are paying $15 more than they did last year.

That's $15 they can't spend on other things, dealing a blow to the economy. Multiply that by millions.

Feeling poorer

There's also the psychological factor. Consumers see gas prices rise and spend less, just because they feel the pinch. They may reduce their spending by even more than that $15 per fill-up.

In an interview with business cable TV network CNBC today, Exxon CEO Rex Tillerson said oil prices have not yet impacted the economy. But he says that could change if prices continue to rise.

Noted economist Nouriel Roubini this week suggested that the magic price is $140 a barrel. If oil reaches that level, he says, it could push a number of western economies back into recession. U.S. crude prices are around $105 a barrel, while Brent crude, used in Europe, is pushing $120 a barrel.

The tipping point?

$140 a barrel happens to be the high crude oil reached in July 2008. Many economists believe that, and the $4 a gallon gas prices it spawned, is really what led to the Great Recession. Consumers had largely stopped spending long before the credit crisis erupted in September 2008, in the wake of the Lehman Brothers' bankruptcy.

Tillerson believes $4 a gallon gas was a big contributor to the current economic problems.

"An extra $50 a month for fuel doesn't sound like that much, but for many household budgets, that's a big number," he said.

Role of speculators

Three years ago there was heated debate over whether speculators were driving up the price of oil. This time, hardly anyone is arguing oil traders are playing no role. With violence in North Africa and unrest evident throughout the Middle East, many traders are betting on an eventual supply interruption.

Dennis Gartman, author of The Gartman Letter, said he believes the action of speculators in the oil market have added $15 to the price of a barrel of oil.

If that's correct, it could mean a swift drop in oil prices, should events in the Middle East calm down. Until then, oil prices could keep rising and the global economy could hang in the balance.