MR. BORGIDA
Now joining us to discuss all of this James Placke, a Senior Fellow at the Brookings Institution here in Washington. Mr. Placke, thanks for joining us. We appreciate your time. We saw a brief interview there of an American pumping gas, who is concerned about the high price of gas. Should Americans be concerned that there will be an oil shortage if there is a war?
MR. PLACKE
There won't be an oil shortage. There is sufficient excess capacity in the world, principally in Saudi Arabia and the other Gulf states, to offset the cessation of Iraqi exports. But the prices will continue to go up until this issue is clarified one way or another. That's almost certain.
MR. BORGIDA
So, investors, at the same time -- the market has tumbled yesterday and is not doing too well today at this point; what do you expect on that point?
MR. PLACKE
Well, I'm afraid, probably again, more of the same. This degree of uncertainty about a major political/military event -- that is, the possibility of war with Iraq -- is very bad for equity prices. The equities markets dislike uncertainty, and prices go down. The oil markets also dislike uncertainty, but prices go up.
MR. BORGIDA
Mr. Placke, put this in some historical perspective for us, where we are now vis-ŕ-vis where we have been in previous years, and give us some significance for all of that.
MR. PLACKE
Prices in terms of today's dollars, the price of gasoline at the pump, has risen by about a third in the last five months. But, to put it in a broader perspective, the last time we had a price spike, a serious price spike, was with the collapse of the Shah in Iran. And in 1980, prices in current dollars were $68 a barrel; in other words, double what they are today.
MR. BORGIDA
There has been some speculation that if there is a war and Saddam Hussein reacts to destroy his oil production that that would have a profound impact on the market. What is your sense of that?
MR. PLACKE
I really don't look at it that way. The Iraqi oil industry will have to shut down if there is a war simply for safety reasons if nothing else. If there is significant damage to the industry as a result of Iraqi sabotage or military activity, it isn't going to change the situation. Iraqi exports will be off the market as of the day that military hostilities begin. There is a sufficient supply to meet demand, and that will be there whether Iraq produces a single barrel of oil or not.
MR. BORGIDA
So much of the focus has been, obviously, and for good reason, on Iraq and that part of the world, but there has been some uncertainty in Venezuela, for example. How does that landscape affect the overall global picture?
MR. PLACKE
Well, when Venezuela began to go into serious political disarray back in December, it took a few weeks, for some reason, for the oil market to focus on this. But as supplies began to dwindle into the North American market, prices began to go up seriously. Should there be another disruption on the scale of Venezuela, say, 2 to 3 million barrels a day of additional supply taken away, that would create a shortage.
MR. BORGIDA
And my final question, Mr. Placke: How confident are you that there won't be an oil shortage in the weeks and months ahead?
MR. PLACKE
Well, no one can forecast the future, and I'm afraid I'm no better at that than anybody else.
MR. BORGIDA
Oh, give us a shot at it.
MR. PLACKE
If there is another Venezuela, if there is a political upset -- well, you can think of the country -- anywhere around the world, on almost any continent, that would have an impact on supply and there would be a supply shortfall. Then what comes into play is the reserve mechanisms, the U.S. Strategic Petroleum Reserve, the IEA stocks that are handled in a coordinated way, and you begin to have to fall back on those emergency measures.
MR. BORGIDA
Mr. Placke, thanks for your time. Jim Placke, a Senior Fellow at the Brookings Institution here in Washington.
