U.S. Doesn’t Expect Oil Shortage Even if War Breaks Out

With the deadline for a possible Persian Gulf conflict only days away, the Energy Department insisted Wednesday that any disruption in oil supplies can be offset from other production and that Saudi Arabian oil fields can be defended successfully against attack.

Assistant Secretary of Energy John Easton assured a House energy and commerce subcommittee that the United States and other members of the International Energy Agency have contingency plans to meet virtually any supply emergency arising from a gulf war.

“There is no oil shortage now, and the United States and its allies have the ability to respond to further disruptions,” Easton testified. “If there is disruption, that is precisely what the strategic stocks of the United States and its allies are for.”

Easton declined, however, to divulge official projections of a shooting war’s potential effect on the price of oil, which soared to about $40 a barrel from less than $20 after Iraq’s Aug. 2 invasion of Kuwait. The price has since settled in the high $20s--closing up just 9 cents, at $27.26 a barrel, in frantic trading Wednesday on the New York Mercantile Exchange.

Another panel witness, however, said the price of oil could explode to as much as $100 a barrel if war breaks out after next week’s deadline for an Iraqi withdrawal from Kuwait. U.S.-Iraqi talks in Geneva on Wednesday failed to produce a diplomatic breakthroughs.

Edwin S. Rothschild, energy policy director of Citizen Action, an advocacy group, cited the possibility of unprecedented oil prices and demanded that the Bush Administration prepare to release oil from the Strategic Petroleum Reserve and adopt other crisis management policies.

Rothschild also accused U.S. oil companies of profiteering by raising gasoline prices within days of Iraq’s invasion of Kuwait.

“The American people have a right to know what is going on,” he said. “They have a right to know why they don’t get lower prices when crude prices fall if they pay higher prices when crude prices rise.”

In fact, gasoline pump prices have declined since November, when crude prices peaked. And the Energy Department has noted that during the earlier price increases, gas prices rose less, proportionally, than did crude prices.

Energy Secretary James D. Watkins has said he would recommend drawing down the Strategic Petroleum Reserve, which contains 586 million barrels of oil, to stabilize oil markets in the event of a gulf war.

Responding to questions from Reps. Philip R. Sharp (D-Ind.) and Alex McMillan (R-N.C.), Easton acknowledged that the White House has made no formal decision on Watkins’ recommendation.

Sharp, joined by Energy and Commerce Committee Chairman John D. Dingell (D-Mich.) and member Ron Wyden (D-Ore.), said the Administration should obtain a firm commitment from Germany and Japan, which have their own oil reserves, to join in a coordinated drawdown. They rejected Easton’s suggestion that a drawdown would be adequately overseen by the International Energy Agency.

On Friday, Easton will participate in a meeting of the IEA in Paris, the first since the U.N. Security Council established Jan. 15 as the deadline for Iraq to pull out of Kuwait or face military action. He said IEA members would review current contingency plans.

Easton repeated previous Energy Department assertions that world oil supplies are sufficient to weather a gulf conflict and that Saudi oil fields can be protected in the event of an Iraqi attack. The IEA reported Wednesday that the industrialized world has built up more than a three-month supply of oil--the biggest reserve since 1982.

“We do not see a serious military threat to the Saudi facilities,” Easton said. “The world has plenty of oil at the moment. We know that the Saudis are able to increase production. We know there are high commercial stocks of oil and oil (in transit) on the high seas. The strategic reserves are ready to be used.”

Although California receives no crude oil from the Middle East, the state will still probably be affected by a Persian Gulf war, according to the California Energy Commission.

Although 60% of California’s crude comes from Alaska, “the Alaskan oil will go for whatever price world oil will go for,” said Claudia Barker, a commission spokeswoman. “It will not sell (for) less per barrel because it was home grown.”

According to a commission survey late last month, crude oil and petroleum product inventories on the West Coast are adequate, barring major refinery problems or extreme cold weather.

Times staff writer Larry B. Stammer in Los Angeles contributed to this story.

Fuel Gauge Report Retail price per gallon for self-serve regular unleaded gasoline, based on a weekly telephone survey of 1,400 retail gasoline stations July 25: $1.050 Aug. 7: $1.201 Nov. 13: $1.385 Jan. 8: $1.248 Source: American Automobile Assn.,Computer Petroleum Corp.