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CNN Live Sunday
Interview With Ruben Farzad
Aired December 22, 2002 - 17:19 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RENAY SAN MIGUEL, CNN ANCHOR: You may be wondering what an oil crisis on another continent has to do with the U.S., but it actually has a big impact on your wallet. Prices in the U.S. for regular self- service gas are up almost three cents, to $1.41 on a gallon. Ruben Farzad of "Smart Money" magazine covers the oil industry and he joins us from Miami. Ruben, thanks for being with us tonight.
RUBEN FARZAD, SMART MONEY MAGAZINE: Hi, Renay.
SAN MIGUEL: Hey there. Well, can we go ahead and lay that three-cent increase primarily at the feet of the Venezuelan oil crisis? Or is this also Iraq playing into this as well?
FARZAD: It's a function of a whole lot of uncertainty at the worst possible time for consumers. I mean, you're right in the thick of Christmas shopping season, and not only do we have to worry about Iraq and the goings on there, you had a report earlier on on the live fire exercises. But in addition, there's this really delicate situation in Venezuela that can blow over at any minute.
SAN MIGUEL: So, a lot of Americans may not think of Venezuela when they think of an OPEC country, but it's actually a charter member of the Organization of Petroleum Exporting Countries. Tell us how much, remind us how much of the world market comes from Venezuela and how much goes to the U.S.?
FARZAD: Sure. Venezuela, actually, is the world's fifth-largest oil exporter and produces -- is responsible for about 15 percent of America's oil imports. And in the past three weeks, during the general strike, it's only been able to produce 10 percent of its capacity. So it's one thing if Saudi Arabia can step up to the plate and fill in the void, but that can only happen for so long, and oil right now is above $30 a barrel at a very, very tense time for OPEC.
SAN MIGUEL: So President Chavez is trying to use the National Guard there to take over oil tankers involved with the strike. The Supreme Court there has ordered the executives back to work; they're refusing. It's just a stalemate right now. Where do you see this heading and how long do you see this impacting, or maybe even the impact would be greater on Americans at the pump?
FARZAD: Well, Renay, in a perfect world there would be some modicum of compromise at this point, but the population is pretty adamant in wanting him out. He has usurped many powers that he is not supposed to have under the Constitution, extended his term. Constitutionally, the first month we can have a referendum is next August. And the population seems very adamant in not wanting to wait that long. So if they can get together and maybe agree on early elections, that's one thing.
But if this situation deteriorates, if you see supermarket shelves continuing to be empty, if you see gas not available anywhere, you do have the potential for looting, and this vicious cycle of violence and shooting and violence and tanker takeovers. So it's very touch and go at this point.
SAN MIGUEL: The U.S. response has been somewhat muted. You know, back in April, when the coup happened and he went back in, there were some comments from the White House. But since that time, really nothing. And understandably the Bush administration has other issues on its plate right now, but what are the political pitfalls here for the U.S.?
FARZAD: The Bush administration has to be very careful with this, because you did allude earlier, in April when Chavez was ousted, apparently for all of 24 hours, and he didn't exactly step down. Ultimately he came back and held up a copy of the Constitution, said you can't knock me out that easily. So the Bush administration is really once bitten, twice shy. And they realize that they have to play this a lot more carefully now, because they're worried about the Iraq front. If we are, indeed, planning on an Iraq invasion for some time in February, we have to make sure that we are not losing supply on two fronts.
So, you know, you're really wise to wait the situation out, make sure one way or another Chavez is in power or he's not in power. Don't jump the gun.
SAN MIGUEL: So let's take it to the worst case scenario in Venezuela that we do see riots and we do see this continuing there, and we do see the situation with Iraq coming to a head. How high do you think the prices are going to go at the pump for the average American?
FARZAD: It's scary to think about it. The dollar is at a somewhat acceptable $1.40 a gallon -- I'm sorry, gasoline is $1.40 a gallon right now. If that were to break the $1.75, $2 threshold, that really puts a pinch on the American consumer, which right now is holding a teetering economy on his shoulders. If you were to pull that out from under him, there's no telling what can happen. There's a whole series of -- there is this whole chain effect that can happen, but that's really a worst-case scenario, and there is a lot of time between now and the supposed February deadline for Iraq's cooperation.
SAN MIGUEL: And very quickly, we're also talking about refined products also being impacted as well, jet fuel, diesel and the impact on American business with that.
FARZAD: Sure. I mean, the impact is terrible. You talked about jet fuel, this is the last thing the airline industry needs right now. You saw United bankruptcy, and this is one of the largest components of the cost structure of airlines. If you see jet fuel prices spike, you know, you can see many other bankruptcies in the industry. But let's see what happens, ultimately. At least the Bush administration learned from what happened in April not to jump the gun. The situation is very violent right now in Venezuela, but there is an opportunity for a peaceful resolution.
SAN MIGUEL: We'll see what happens. Ruben Farzad with "Smart Money" magazine, thanks for being with us tonight.
FARZAD: Thank you, Renay.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
Aired December 22, 2002 - 17:19 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RENAY SAN MIGUEL, CNN ANCHOR: You may be wondering what an oil crisis on another continent has to do with the U.S., but it actually has a big impact on your wallet. Prices in the U.S. for regular self- service gas are up almost three cents, to $1.41 on a gallon. Ruben Farzad of "Smart Money" magazine covers the oil industry and he joins us from Miami. Ruben, thanks for being with us tonight.
RUBEN FARZAD, SMART MONEY MAGAZINE: Hi, Renay.
SAN MIGUEL: Hey there. Well, can we go ahead and lay that three-cent increase primarily at the feet of the Venezuelan oil crisis? Or is this also Iraq playing into this as well?
FARZAD: It's a function of a whole lot of uncertainty at the worst possible time for consumers. I mean, you're right in the thick of Christmas shopping season, and not only do we have to worry about Iraq and the goings on there, you had a report earlier on on the live fire exercises. But in addition, there's this really delicate situation in Venezuela that can blow over at any minute.
SAN MIGUEL: So, a lot of Americans may not think of Venezuela when they think of an OPEC country, but it's actually a charter member of the Organization of Petroleum Exporting Countries. Tell us how much, remind us how much of the world market comes from Venezuela and how much goes to the U.S.?
FARZAD: Sure. Venezuela, actually, is the world's fifth-largest oil exporter and produces -- is responsible for about 15 percent of America's oil imports. And in the past three weeks, during the general strike, it's only been able to produce 10 percent of its capacity. So it's one thing if Saudi Arabia can step up to the plate and fill in the void, but that can only happen for so long, and oil right now is above $30 a barrel at a very, very tense time for OPEC.
SAN MIGUEL: So President Chavez is trying to use the National Guard there to take over oil tankers involved with the strike. The Supreme Court there has ordered the executives back to work; they're refusing. It's just a stalemate right now. Where do you see this heading and how long do you see this impacting, or maybe even the impact would be greater on Americans at the pump?
FARZAD: Well, Renay, in a perfect world there would be some modicum of compromise at this point, but the population is pretty adamant in wanting him out. He has usurped many powers that he is not supposed to have under the Constitution, extended his term. Constitutionally, the first month we can have a referendum is next August. And the population seems very adamant in not wanting to wait that long. So if they can get together and maybe agree on early elections, that's one thing.
But if this situation deteriorates, if you see supermarket shelves continuing to be empty, if you see gas not available anywhere, you do have the potential for looting, and this vicious cycle of violence and shooting and violence and tanker takeovers. So it's very touch and go at this point.
SAN MIGUEL: The U.S. response has been somewhat muted. You know, back in April, when the coup happened and he went back in, there were some comments from the White House. But since that time, really nothing. And understandably the Bush administration has other issues on its plate right now, but what are the political pitfalls here for the U.S.?
FARZAD: The Bush administration has to be very careful with this, because you did allude earlier, in April when Chavez was ousted, apparently for all of 24 hours, and he didn't exactly step down. Ultimately he came back and held up a copy of the Constitution, said you can't knock me out that easily. So the Bush administration is really once bitten, twice shy. And they realize that they have to play this a lot more carefully now, because they're worried about the Iraq front. If we are, indeed, planning on an Iraq invasion for some time in February, we have to make sure that we are not losing supply on two fronts.
So, you know, you're really wise to wait the situation out, make sure one way or another Chavez is in power or he's not in power. Don't jump the gun.
SAN MIGUEL: So let's take it to the worst case scenario in Venezuela that we do see riots and we do see this continuing there, and we do see the situation with Iraq coming to a head. How high do you think the prices are going to go at the pump for the average American?
FARZAD: It's scary to think about it. The dollar is at a somewhat acceptable $1.40 a gallon -- I'm sorry, gasoline is $1.40 a gallon right now. If that were to break the $1.75, $2 threshold, that really puts a pinch on the American consumer, which right now is holding a teetering economy on his shoulders. If you were to pull that out from under him, there's no telling what can happen. There's a whole series of -- there is this whole chain effect that can happen, but that's really a worst-case scenario, and there is a lot of time between now and the supposed February deadline for Iraq's cooperation.
SAN MIGUEL: And very quickly, we're also talking about refined products also being impacted as well, jet fuel, diesel and the impact on American business with that.
FARZAD: Sure. I mean, the impact is terrible. You talked about jet fuel, this is the last thing the airline industry needs right now. You saw United bankruptcy, and this is one of the largest components of the cost structure of airlines. If you see jet fuel prices spike, you know, you can see many other bankruptcies in the industry. But let's see what happens, ultimately. At least the Bush administration learned from what happened in April not to jump the gun. The situation is very violent right now in Venezuela, but there is an opportunity for a peaceful resolution.
SAN MIGUEL: We'll see what happens. Ruben Farzad with "Smart Money" magazine, thanks for being with us tonight.
FARZAD: Thank you, Renay.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
