Exxon Chief Says Oil Industry Is Already Jarred by Fears of War

www.nytimes.com By NEELA BANERJEE

he oil industry is already feeling powerful repercussions from the current economic and political volatility spawned by fears of war in the Persian Gulf, according to Lee Raymond, the chairman and chief executive of Exxon Mobil, the world's largest oil company.

In a rare and broad-ranging meeting yesterday in New York with securities analysts and journalists, Mr. Raymond pointed out, for example, that oil prices near $40 a barrel create a number of problems for oil companies.

"Frankly, we're not comfortable with oil prices in the high 30's," he said. "They can have long-range impacts that are not all that attractive."

When prices rise so high, they usually fall quite far and quite rapidly, and such volatility "over a long period of time puts a damper on investment" in the industry, Mr. Raymond said.

"It's easy to live with the peaks, but the fear is what the valleys will bring," he said. When investment in new fields and projects declines, less oil gets produced and prices generally remain higher.

Mr. Raymond said he also worried that high prices would lead to a backlash against the oil industry.

"We seem to have an investigation every time prices are high," he said. "Why is there never an investigation when prices go down?"

With the strike in Venezuela continuing and the looming possibility of war with Iraq, Mr. Raymond declined to predict how long oil prices would stay high.

Analysts estimate that Iraq currently exports a little less than 2 million barrels a day, legally and otherwise, and there is a very strong chance those exports would halt if the United States attacked.

"If the Iraqi oil disappears, you get into the question of whether it is transitory or whether capacity has been lost," Mr. Raymond said. "It's clear if there is a war, they will stop exporting. But what the markets will ask is, how long the war will be? Or will Saddam Hussein have torched his oil fields?"

Mr. Raymond said he thought the Organization of the Petroleum Exporting Countries would try to make up for any shortfall of Iraqi oil, although they were already pumping at near full capacity. But he also predicted that if supplies dwindled and an oil shortage became a real possibility, the Bush administration might step in.

"I think under those circumstances the United States government would start releasing oil from the Strategic Petroleum Reserve," Mr. Raymond said, referring to an emergency stockpile of crude oil the country keeps to cushion disruptions of oil supplies.

Mr. Raymond said that the energy crisis of 1973 had taught the government and the oil companies how to cope with supply crises. He urged the government not to cap prices, as it did in the 1970's, or domestic supplies might dwindle and rationing might have to begin.

"You have to focus on whatever you need to do to keep the continuity of supply," he said. "It's very important not to have gasoline lines at service stations."