The outbreak of war in the Persian Gulf has produced an astonishing development - a dramatic drop in the price of crude oil. The plunge was as much as $10 a barrel, sending the price from around $32 a barrel down to $21. At the height of the war scare, prices were nearly $40 with fears they might soar to as much as $70.
If the war goes extremely well and ends in just a few weeks, experts say the price of a barrel of oil could fall to $10 a barrel, significantly lower than before Iraq's invasion of Kuwait on Aug. 2. This could propel the United States and the world out of any recession - at least until OPEC could reduce oil production and raise the price.None of this is expected to produce a quick drop in gasoline prices at the local service station. Bad news from the war front could send prices zooming upward again. Besides, prices at the pump are slow to reflect what happens in the world market - unless, of course, the price is rising.
When Iraq invaded Kuwait and an embargo was imposed, prices rose rapidly in expectation of shortages. But Saudi Arabia and others increased production to make up the loss from Iraq and Kuwait. Since then, demand has slumped because of the sour world economy. Actually, the world is awash in oil. Yet the pump price for gasoline has remained fairly high and steady.
One reason is the fear that fighting might bring Saudi oil fields and others under attack, creating a shortage. But with the good news from the battle front this past week, plus President Bush's release of some oil reserves, suddenly the market focused on the fact that there is a huge surplus of oil.
If Iraq goes down to defeat and especially if Kuwait oil fields are not destroyed by a retreating Saddam Hussein, cheap gasoline may be the rule for a while.
But a word of warning. Even if the gulf crisis fades and there is a temporary oil surplus, that is no reason to continue or increase America's wasteful oil consumption. Every effort must be made to reduce the use of oil and the dependence on foreign suppliers.
Eventually, some other crisis will come along. Besides, oil reserves are diminishing and one day they will be gone entirely. Then what?