Mideast shock waves may ripple through Las Vegas tourism industry

Bloody revolutions rumbling through the Middle East are starting to send shock waves through the Las Vegas tourism industry because analysts fear Middle Eastern oil shortages would increase the cost of traveling to Las Vegas.

That was the consensus of three analysts speaking to about 60 attendees late Thursday at the annual forecast dinner of the Chartered Financial Analyst Society of Nevada in Las Vegas.

Stephen Brown, director of the center for Business and Economic Research at the University of Nevada, Las Vegas, said the spike in oil prices so far are stemming from fears of shortages, rather than actual oil shortages.

The price of oil affects the prices that Californians, who account for 40 percent of the tourists visiting Las Vegas, pay at the pump. Other tourists catch flights to Las Vegas, but air fares will increase if jet fuel prices climb.

Also, when consumers must spend more for gasoline, they have less discretionary income for things like trips to Las Vegas, Brown said.

"Las Vegas is a place that is very dependent on (consumer) discretionary income," Brown said.

Libya supplies for 2 percent of the world's oil, said George Iwanicki Jr., managing director of global emerging markets equity at JP Morgan Asset Management.

Saudi Arabia has excess oil production capacity and could offset shortages from other Middle Eastern states, Brown said. However, Saudi Arabia couldn't do that it becomes embroiled in the rolling revolutions shaking the region.

"Saudi Arabia is a big wild card," Brown said.

Christopher Phillips, senior investment analyst at mutual fund giant Vanguard Group, said that energy's share of the U.S. economy has declined in recent decades.

Although oil shortages would affect the United States, the impact would be less than the same kind of shortage would have had during the 1970s, when motorists formed long lines to buy gasoline, he said.

Brown said that $4.50 per gallon gasoline "is probably within the range of possibilities." He doubted gasoline prices would reach $5 a gallon in the near term.

Already, AAA said, the price of gasoline in Las Vegas has jumped following the Middle Eastern revolts.

The average price of regular gasoline hit $3.368 in Las Vegas on Friday, up from $3.317 on Thursday and $3.084 a month ago, AAA said in its Daily Fuel Gauge Report.

"I think the increase in gasoline prices has caught everybody off guard," AAA Nevada spokesman Michael Geeser said.

Middle Eastern turmoil is coming as refineries are starting to reformulate their gasoline for summer and already have lower-than-usual gasoline supplies, he said.

He agreed that spiking fuel prices could cut tourism traffic to a trickle, recalling 2008 when gasoline prices exceeded $4 a gallon.

"You could get a room on the Strip for anything you wanted" because demand for hotel rooms had collapsed, he said.

Contact reporter John G. Edwards at
jedwards@reviewjournal.com or 702-383-0420.