Weapons of Mass Destruction (WMD)

DATE=01/24/03

TYPE=CORRESPONDENT REPORT

TITLE=OIL PRICE THREAT (L-O)

NUMBER=2-298775

BYLINE=BARRY WOOD

DATELINE=WASHINGTON

CONTENT=

VOICED AT:

INTRO: Crude oil prices in New York were up sharply Friday amid increasing signs that the United States may be moving towards a war with Iraq. V-O-A's Barry Wood reports that some analysts worry a rising oil price could tip the weak global economy into recession.

TEXT: Oil prices on the New York Mercantile Exchange rose 87 cents to over 33 dollars an barrel. Oil prices are up 60 percent over the past year and some analysts fear they could go much higher if there is a war in Iraq. Economist Jim Smith in Chapel Hill, North Carolina is a close observer of the oil market.

///SMITH ACT///

If there's a war that starts, say February 10th, then oil prices could spike up from 32 dollars to 40 dollars perhaps. I don't see them going much above 40 dollars. There is a lot of excess supply around the world. There is a lot of war premium in prices. And of course you have the Venezuelan problem.

///END ACT///

Venezuelan exports are way down because of civil unrest in that South American country.

Yousif Ibrahim is energy analyst at the Council of Foreign Relations in New York. Just back from Saudi Arabia, Mr. Ibrahim worries that rising oil prices will trigger a global recession.

///IBRAHIM ACT///

Already where we are, with prices at 32 or 33 dollars a barrel, it is very negatively affecting the world economy. If we go anywhere near 35 dollars or 40 dollars a barrel I think it will have a devastating effect on the American and world economy.

///END ACT///

But economist Jim Smith is more optimistic. He assumes a war would be of short duration. After that, he says, the oil price will collapse.

///SMITH ACT///

Assuming the war lasts a month or less and that the U-S, U-N coalition is victorious and some kind of coalition government is either in place and it's not seen that the U-S is coming in and dominating everything, oil prices will collapse down to 15 dollars a barrel, perhaps even lower.

///END ACT///

The critical factor, say analysts, is the duration of any price spike. At the moment oil priced at 33 dollars is restraining the global economy. If it goes higher, the impact will be greater. (signed)

NEB/BDW/RH