Prospects Of War, Psychology of Oil

Q. Does Saddam Hussein have a plan?

A. He knows that Iraq has a terrible financial problem, and he has to solve it. That is the root of his motivation, in my judgment. He thinks the best way to deal with this difficulty is to take over Kuwait, get hold of its oil and financial assets. Beyond that he has other great ambitions, which must also be financed.

Q. What is Iraq's oil strategy? And how great a threat does Saddam's control of the Kuwaiti oil fields represent?

A. I wonder if Iraq has a strategy. Saddam may only have temporary oil ! policies, depending on his large financial requirements. He has always tried to produce a lot of oil to make more money. But that is not a strategy.

Q. How disruptive can Iraq be?

A. Very disruptive. But if Iraq succeeds, initially prices would actually come down. How much would depend on Iraq's financial situation. Saddam's main objective is not the stability of the price of oil. It is to serve the financial requirements of Iraq.

Q. In other words, if the international community had not responded to the invasion, Iraq would at first have sold a great deal of Kuwaiti oil, driving the price down?

A. Yes, and to avoid a price collapse, Iraq would also pressure the Saudis, the United Arab Emirates and other gulf producers to reduce their output.

Q. How do you evaluate Saddam's threat to the Saudi oil fields?

A. Well, let us remember what happened during the Iran-Iraq war. Iraq had superiority in air power and was still not able to destroy any of Iran's oil fields -- even though they were nearby and within reach. Iraq was able to destroy only part of the huge oil terminal in the gulf at Kharg Island.

Today Iraq does not have superiority in the air. In the absence of that, their ability to inflict damage on the Saudi oil fields is zero.

Q. What would happen to the price of oil if war were to break out tomorrow?

A. Everything that is happening today in the market is psychological. A rumor might come in that an airplane is shot down or an official is assassinated -- and prices will jump by $3 to $4 a barrel. Another rumor says that peace talks are under way, and prices will drop. Now, if war erupts, psychology will be at work again. You have so many scenarios: the price could go up to $50, it can go to $60. If Iraq succeeds in halting the flow of oil from Saudi Arabia -- and I said this was a very big if -- then prices will jump to $100 a barrel, but only temporarily. Then prices will start coming down.

Q. Right now there is roughly 100 days' global supply of oil or 3.2 billion barrels, more than twice the level during the 1979 oil crisis. Why are today's prices so high?

A. Again, high prices come from market psychology, as they have in the past. The difference now is that we have a much larger volume of oil stocks than we did in the 1979 crisis. The world is currently producing at full capacity. Nevertheless, the market players keep pushing the price up and up. In 1979 they doubled the price of oil in eight months. This time they doubled it in only two months.

Q. President Bush spent many years in the oil business before going into politics. Would you comment on U.S. energy policy?