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Looming War against Iraq Raises Concerns about Oil Prices - 2003-03-11


The Organization of Petroleum Exporting Countries began its second quarter meeting today amid speculation about possible war in Iraq and concern about rising oil prices.

VOA-TV’s Melinda Smith has more on the volatile combination of oil, war and politics.

Americans who are old enough to remember the Arab oil embargo of 1973 are old enough to remember the gas shortages. Tempers flared as prices soared. Thirty years later in 2003, Americans are complaining again.

SOUND ON TAPE, WOMAN TALKING
“The sticker shock of the last couple of gas bills has made me realize I better be saving because I don’t know what the next gas bill is going to be.”

In 1973, the United States and other western nations were suddenly at the mercy of oil producers. The U.S. and its allies had helped Israel win the October 1973 war with Egypt. Oil producing nations in the Middle East took revenge on western consumers by curtailing supplies.

But there are differences today. This time Saudi Arabia and other OPEC nations are pumping near capacity, anticipating that a war would disrupt oil supplies from Iraq. Energy Expert Robert Ebel of the Center for Strategic and International Studies in Washington

ROBERT EBEL, ENERGY EXPERT, THE CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES
“Saudi Arabia, the leader of OPEC, is very quietly producing well above its quota, trying to do what it can very quietly to get oil out into the marketplace.”

The 1973 energy crisis prompted the U.S. Government to create the strategic petroleum reserve. Today the reserve amounts to 600 million barrels of crude oil. That’s about a two-month national supply. When the first President George Bush tapped the strategic reserves on the first day of the 1991 gulf war, crude oil prices dropped in one day from $32 a barrel to $21 a barrel. He was later criticized for acting too late to prevent a recession.

In the year 2000 then President Clinton tapped the reserve again, this time to relieve high heating oil prices and temporary shortages in the northeastern United States. Republican opponents accused him of using the reserve to win political favor with voters.

Now some Americans are asking what this administration will do. President George W. Bush’s Energy Secretary Spencer Abraham says the strategic reserves will only be used in case of an emergency.

SECRETARY SPENCER ABRAHAM, U.S. ENERGY SECRETARY
“Obviously we’re prepared to act. But that situation is not yet, in our judgment, arrived.”

In 1973, the United States imported 35 per cent of its energy supply. Today it imports 57 per cent. But while it has become more dependent on imports, those imports come from 60 different sources.

Energy Expert Robert Ebel says there is safety in numbers.

ROBERT EBEL, ENERGY EXPERT, THE CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES
“If you are a major importing country like the United States, really, the only kind of protection you can seek is security of supply through diversity of supply.”

Canada is the biggest supplier to the United States, then Saudi Arabia, Mexico and Venezuela. Robert Ebel says the recent halt in Venezuelan production because of political unrest caught the U.S. by surprise.

ROBERT EBEL, ENERGY EXPERT, THE CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES
“I think what bothers me and bothers others is that we had always felt that our suppliers in the Western Hemisphere, Canada, Mexico, and Venezuela were always secure. We didn’t have to worry about them. Now we find out that’s really not the case.”

As the Bush Administration engages in last-minute diplomatic maneuvering before a final decision on going to war in Iraq, prices for crude oil have hovered near $40 a barrel and supplies are at a 28-year low. But Robert Ebel thinks prices will come down once the market sees which way the war is going.

ROBERT EBEL, ENERGY EXPERT, THE CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES
“Prices will always ‘spike’ in the initial initiation of hostilities, then the realization sets in, ‘well, it’s not going to be so bad after all’ so it should start to come down, particularly after we have a quick decisive victory.”

There are other factors that may be contributing to the price hikes. A long, unusually cold winter in the northeastern U.S. has put more demand on heating sources, and in California, refiners have been required to switch to a cleaner gasoline blend at the same time some refineries are off line for maintenance.

California motorists are paying some of the highest prices in the nation.

SOUND ON TAPE, CALIFORNIA MOTORIST
“I drive less, I seem not to go out as much.”

Since world war two, there has been a recession each time oil prices have risen by at least 60 per cent. In the last week oil prices have risen by 69 per cent.

Robert Ebel is reluctant to forecast a recession unless Saddam Hussein does something drastic, like setting fire to Iraqi oil fields as he did in Kuwait during the Iraqi invasion.

ROBERT EBEL, ENERGY EXPERT, THE CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES
“He attacks Israel, there is sabotage inside Kuwait and Saudi Arabia. You know, so much oil is taken off the market. Prices skyrocket and don’t come down for months. That could very well bring about a world recession.”

Energy Experts say the additional output by Saudi Arabia should hit the U.S. market in a few weeks. Unless the situation in Iraq drags on, they say inventories should go up and prices will come down.

Mellina Smith, Washington.

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