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CNN Live Saturday

Could War With Iraq Mean Higher Gas Prices?

Aired August 31, 2002 - 18:05   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

MARTIN SAVIDGE, CNN ANCHOR: There are worries that a war with Iraq could translate into problems at home in the form of higher prices at the gas pump. Experts say that drivers could be already paying the price.
CNN national correspondent Bob Franken explains.

(BEGIN VIDEOTAPE)

BOB FRANKEN, CNN CORRESPONDENT (voice-over): It's being called the war premium and we're already paying it, 10 to 15 cents a gallon more for gasoline because oil has gotten more expensive, before any war started.

DIANE SWONK, BANK ONE CORPORATION: The markets, the oil markets, have already priced in a $6.00 premium for oil. And we're already paying some of the price of actually going to war with Iraq, whether we're in war with Iraq or not.

FRANKEN: The experts are spending lots of time pondering what happens if the United States really does go in and try to remove Saddam Hussein? And most of them conclude that it might not be all that bad, that petroleum could well be plentiful. Prices higher, but not through the roof. There's little worry about a return to the bad old days of the '70s and the long lines at the gasoline pumps, when there were major shortages because oil producers acted as one in the so-called Arab oil boycott.

This time, they are not expected to act as one. Iraq itself is not much of a factor. Even though it could be a major oil producer, it is not. Its sales are negligible because of stringent restrictions and nervousness on the part of the oil companies. Planners expect that Saudi Arabia, Kuwait, and other major producers would quickly fill in any gaps caused by an Iraq shut down and any other immediate shocks.

Iraq. has over 111 billion barrels of proven reserves, but it's mainly just sitting there. Saudi Arabia has far and away the largest reservoir, more than 260 billion, which does the kingdom no good resting underground. So the X factor, as usual, could be Saudi Arabia. Both the Saudis and the United States had a strong reason for the meeting between the country's ambassador and President Bush at the president's ranch to smooth over bruised feeling.

Saudi Arabia is already trying aggressively to keep prices down by convincing OPEC to bring production up. ADEL AL-JUBEIR, SAUDI ADVISER: Saudi Arabia has had the long standing policy of seeking stability in the oil markets for the benefit of both producers and consumers. We have been very responsible in ensuring that there are adequate supplies. And we have been very responsible in ensuring that prices remain at reasonable levels. And we intend to continue that.

FRANKEN: Planners are focusing a lot of attention on the security that would avoid a repetition of this, the fires set in Kuwait's oil fields by the spiteful Iraqis during Gulf War I. That time around, there was a nervous spike, but then the nerves and the prices settled down.

JOHN FELMY, AMERICAN PETROLEUM INST.: You had a significant run up in crude prices to over $40 a barrel. And then, once the war commenced, you had a drop of crude oil of $10 a barrel in one day.

FRANKEN (on camera): There's a widespread feeling that the costs could again quickly stabilize, particularly if the invasion was successful and the relationship with a post-Saddam Iraq also stabilized.

Bob Franken, CNN, Washington.

(END VIDEOTAPE)

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