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Tuesday, February 29, 2000

Oil price increases
aren’t likely to last

Bullet The issue: Despite the current surge in oil prices, the long-term outlook is for increased world supply and lower prices.

Bullet Our view: The United States should be planning for a world in which oil is plentiful, which could create turmoil in oil-exporting countries.

WITH oil prices almost triple what they were in December 1998, energy costs have again become a major economic concern. The Federal Reserve and European central bankers have warned that high oil prices could spark inflation, which could threaten the nation's current prosperity.

OPEC and other producers have cut the equivalent of about 5 million barrels a day, or 7 percent of world supply. U.S. and European Union officials have called on oil exporters to boost production by 2 million to 2.5 million barrels a day to relieve the pressure on prices.

But despite the appearances, the world faces a glut, not a scarcity, of oil and prices will come down again. This is the view of Amy Myers Jaffe and Robert A. Manning, writing in the influential journal Foreign Affairs.

They declare that contrary to "the usual hysteria about dwindling supplies," long-term trends point to an oil surplus and low oil prices over the next two decades.

As for the current run-up of oil prices, engineered by Saudi Arabia, they write that this is based on a "fragile deal" among producers that could quickly unravel. Indeed, pressure is already being applied on OPEC and other exporting countries to release more oil on the world market.

Jaffe and Manning recall that in 1972 the group of experts known as the Club of Rome declared that only 550 billion barrels of oil remained in world reserves and they would run out by 1990. What happened instead was that the world consumed 600 billion barrels between 1970 and 1990. Yet there are today more than a trillion barrels of proved reserves, recoverable at current prices, and the figure is likely to continue rising.

New discoveries of oil deposits and new plans to expand production capacity continue to be announced. Jaffe and Manning point to the supply potential in Iraq, Russia, Africa and elsewhere as nullifying the prospect that the world will soon deplete its oil resources.

Since the 1970s there have been dramatic advances in oil technology that cut the costs of developing reserves and improved the chance for new discoveries. Improvements in platform design and drilling methods have enabled companies to recover more of the oil they find.

Meanwhile other technological advances have made energy consumption more efficient, which reduces pressure on supply. This trend is certain to continue.

Rather than worrying about an oil shortage, Jaffe and Manning say policymakers should be concerned about an oil glut destabilizing countries that are heavily dependent on oil revenues, such as the Persian Gulf states, Russia, Mexico, Indonesia and Venezuela. They warn that many of these countries could see heightened political instability, social unrest, even civil wars.

That concern may seem a distant one to Hawaii motorists who have long paid some of the highest gasoline prices in the nation and have seen prices go up again recently after an unusual dip. But the world has changed since the days of the 1973 OPEC oil embargo. Rather than plan for another oil crisis, the United States should be developing a policy to cope with a world awash in oil.

President Albright?

Bullet The issue: Secretary of State Madeleine Albright may be courted to run for the presidency in her native Czech Republic.

Bullet Our view: She is said to have dismissed the suggestion, but one never knows in politics.

THE highest compliment to be bestowed upon a diplomat may be the suggestion by another country's president to run for his office after his term expires. Vaclav Havel has been nudging U.S. Secretary of State Madeleine Albright for several years to do just that after he steps down from the presidency of the Czech Republic in 2002. Such a run may be tempting.

Albright was born Marie Korbelova in Prague in 1937, but her father, a Czech diplomat, moved his family to London as Nazi Germany took over their homeland at the outbreak of World War II. He brought the family to Denver in 1948 rather than serve Czechoslovakia's Communist government.

The candidacy of an American immigrant for public office in the motherland is not unprecedented. Valdas Adamkus was an American bureaucrat before returning to Lithuania, where he is now president. Onetime California pharmaceutical millionaire Milan Panic became prime minister of Yugoslavia. He was defeated in 1992 by Slobodan Milosevic in his bid for the presidency of Serbia.

Golda Meir was a teacher in Milwaukee before emigrating to Israel and eventually becoming prime minister in 1969.

Albright plans to be in the Czech Republic from March 5-8 to visit the birthplace of national hero Tomas Masaryk, the republic's first president after the collapse of Austria-Hungary in 1918. She will lay a wreath on his tomb, unveil a Masaryk statue in Prague and receive a gold medal at Masaryk University. She insists the trip is not political barnstorming.

Havel's chief adviser told Time magazine "it is not impossible" that his boss and Albright will discuss her possible candidacy. An Albright spokesman says she has dismissed the notion without serious consideration, but almost anything can happen in politics.

The only thing that is certain is that Albright will not run for the White House. The Constitution forbids foreign-born citizens from becoming president of the United States.

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John M. Flanagan, Editor & Publisher

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Diane Yukihiro Chang, Senior Editor & Editorial Page Editor

Frank Bridgewater & Michael Rovner, Assistant Managing Editors

A.A. Smyser, Contributing Editor

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