Katrina: A Global Recession Event?
We have previously commented regarding hurricane seasonality, media hype and oil prices in the wake of Katrina. The media hype on oil price escalation due to Hurricane Katrina overshadows the potential economic dangers involved in this natural disaster.
The downgrading from Cat 5 to Cat 1 was a blessing, but the damage involved could effect the global economy. We may have just avoided a global hurricane recession, but the results are yet to be determined.
From Stratfor.com:
Andrew Jackson fought hard to keep the British from taking New Orleans because he knew it was the main artery for U.S. trade with the world. He was right and its role has not changed since then.
New Orleans sits in a bowl below sea level. The Port of Southern Louisiana is the fifth-largest port in the world in terms of tonnage, and the largest port in the United States.
The Port of Southern Louisiana stretches up and down the Mississippi River for about 50 miles, running north and south of New Orleans from St. James to St. Charles Parish. It is the key port for the export of grains to the rest of the world -- corn, soybeans, wheat and animal feed.
Midwestern farmers and global consumers depend on those exports. The United States imports crude oil, petrochemicals, steel, fertilizers and ores through the port. Fifteen percent of all U.S. exports by value go through the port. Nearly half of the exports go to Europe.
The Port of Southern Louisiana is a river port. It depends on the navigability of the Mississippi River. The Mississippi is notorious for changing its course, and in southern Louisiana -- indeed along much of its length -- levees both protect the land from its water and maintain its course and navigability. Dredging and other maintenance are constant and necessary to maintain its navigability.
The breaching of levees along the Mississippi would constitute a massive disaster for the U.S. and global economies. With the levees in place, the Mississippi is forced to follow an unnatural course. Should they break, the river will follow its own course, making itself unnavigable in the process.
A tremendous amount of economic activity is centered on the Mississippi River. In fact, the amount of commerce flowing up and down the river dwarfs all that of all other transportation systems in the United States -- including freight shipped by rail and highway. If the river cannot be used, dire consequences will hit the U.S. economy.
Some possibilities:
* The port might become in whole or part unusable if levees burst. If the damage to the river and port facilities could not be repaired within 30 days when the U.S. harvests are at their peak, the effect on global agricultural prices could be substantial.
* There is a large refinery at Belle Chasse. It is the only refinery that is seriously threatened by the storm, but if it were to be inundated, 250,000 barrels per day would go off line. Moreover, the threat of environmental danger would be substantial.
* About 2 percent of world crude production and roughly 25 percent of U.S.-produced crude comes from the Gulf of Mexico and already is affected by Katrina. Platforms in the path of Katrina have been evacuated but others continue pumping. If this follows normal patterns, most production will be back on line within hours or days.
* A narrow, two-lane highway that handles approximately 10,000 vehicles a day, is used for transport of cargo and petroleum products and provides port access for thousands of employees is threatened with closure. A closure of as long as two weeks could rapidly push gasoline prices higher.
The downgrading from Cat 5 to Cat 1 was a blessing, but the damage involved could effect the global economy. We may have just avoided a global hurricane recession, but the results are yet to be determined.
From Stratfor.com:
Andrew Jackson fought hard to keep the British from taking New Orleans because he knew it was the main artery for U.S. trade with the world. He was right and its role has not changed since then.
New Orleans sits in a bowl below sea level. The Port of Southern Louisiana is the fifth-largest port in the world in terms of tonnage, and the largest port in the United States.
The Port of Southern Louisiana stretches up and down the Mississippi River for about 50 miles, running north and south of New Orleans from St. James to St. Charles Parish. It is the key port for the export of grains to the rest of the world -- corn, soybeans, wheat and animal feed.
Midwestern farmers and global consumers depend on those exports. The United States imports crude oil, petrochemicals, steel, fertilizers and ores through the port. Fifteen percent of all U.S. exports by value go through the port. Nearly half of the exports go to Europe.
The Port of Southern Louisiana is a river port. It depends on the navigability of the Mississippi River. The Mississippi is notorious for changing its course, and in southern Louisiana -- indeed along much of its length -- levees both protect the land from its water and maintain its course and navigability. Dredging and other maintenance are constant and necessary to maintain its navigability.
The breaching of levees along the Mississippi would constitute a massive disaster for the U.S. and global economies. With the levees in place, the Mississippi is forced to follow an unnatural course. Should they break, the river will follow its own course, making itself unnavigable in the process.
A tremendous amount of economic activity is centered on the Mississippi River. In fact, the amount of commerce flowing up and down the river dwarfs all that of all other transportation systems in the United States -- including freight shipped by rail and highway. If the river cannot be used, dire consequences will hit the U.S. economy.
Some possibilities:
* The port might become in whole or part unusable if levees burst. If the damage to the river and port facilities could not be repaired within 30 days when the U.S. harvests are at their peak, the effect on global agricultural prices could be substantial.
* There is a large refinery at Belle Chasse. It is the only refinery that is seriously threatened by the storm, but if it were to be inundated, 250,000 barrels per day would go off line. Moreover, the threat of environmental danger would be substantial.
* About 2 percent of world crude production and roughly 25 percent of U.S.-produced crude comes from the Gulf of Mexico and already is affected by Katrina. Platforms in the path of Katrina have been evacuated but others continue pumping. If this follows normal patterns, most production will be back on line within hours or days.
* A narrow, two-lane highway that handles approximately 10,000 vehicles a day, is used for transport of cargo and petroleum products and provides port access for thousands of employees is threatened with closure. A closure of as long as two weeks could rapidly push gasoline prices higher.
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