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War might triple petroleum prices

The price of oil could easily soar to $100 a barrel if war broke out in the Persian Gulf, a panel of experts told a Senate committee Wednesday. "There's no limit," said John Lichtblau of the Petroleum Industry Research Foundation. "It depends on how much panic there is.

"The day the war starts prices will explode," said Lichtblau, one of several experts on the oil industry to appear before a Senate Governmental Affairs Committee hearing.

Sen. Joseph Lieberman, D-Conn., echoed growing concern in Congress about what will happen at the pump if war breaks out.

Oil prices hovering in the $33 per barrel range could easily triple, said Professor Fariborz Ghadar of George Washington University's business school. "I would not be surprised if oil prices reached $100 per barrel," Ghadar said.

The response of prices at the pump to rising crude oil prices varies, but some industry experts use a ratio of 12 cents more per gallon for every $5 increase in the price of crude.

At $100 per barrel, under that formula, gasoline could rise to nearly $3 per gallon.

The reasons for the sharp price rise, the experts said, would be fear that war would disrupt supply lines combined with the likelihood that a gulf war would curtail Saudi Arabia's oil-producing capabilities.

The witnesses said that with oil production already at or near capacity, oil-consuming states could do little beyond releasing oil reserves onto the market.

Conversely, if Iraqi President Saddam Hussein suddenly ends the crisis by withdrawing forces from Kuwait, the price of oil could drop just as suddenly to levels below those that preceded the Aug. 2 invasion of Kuwait, witnesses said.

"That range is likely to be reached approximately 48 hours after the crisis is over," Lichtblau said.

"This is a very tight market," Ghadar said. "A pipe blowing up in Nigeria, a fire in Venezuela, some other disruption," could be enough to spread panic and push up prices.

Lieberman pursued the question of whether oil companies and oil producing nations are unfairly gouging consumers.

The answers Lieberman received were not encouraging to consumers. The witnesses said there was little the United States could do to break up the OPEC cartel. In the meantime, the simple laws of supply and demand would govern the price of oil.