The devastation caused by Hurricanes Katrina and Rita has global repercussions. The short term higher U.S. gasoline prices, equivalent to crude trading at $100, will most likely drain the U.S. consumers' ability to increase discretionary spending which in turn could easily weaken global industrial production and cause a peak in rising interest rates before Christmas. Hurricanes Katrina and Rita created a human tragedy and unveiled the poor infrastructure to deal with the challenges of an increasing trend of violent hurricanes in the Gulf of Mexico.

The steep rise in gasoline prices is a reflection of the loss of refining capacity rather than the loss of oil production in the Gulf of Mexico. Roughly 15 percent of U.S. refining capacity is out of action due to Katrina's destructive forces through Louisiana and Mississippi. The huge loss of refining capacity is unfortunate, occurring at a time when all U.S. refineries are operating at near full capacity, and at a time when finished inventory of motor gasoline is at extreme low levels — just 14 days of supply. Thus the cost of a refined barrel of oil spiked to $40 more than a barrel of crude. If gas at the pump stays above $3 for long, some economists are forecasting 6 percent inflation. However, the wages of supervised workers — 80 percent of the U.S. workforce — are rising at a slow pace of 2.5 percent, which means the consumer's ability to spend is shrinking.