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March 6, 2003, 8:00 a.m.

he chart above represents average annual domestic first-purchase prices per barrel of oil, expressed in inflation-adjusted terms, with all prices in 2003 dollar values. There are two notable spikes associated with unrest in the Gulf region:

1. Note the spike in the time leading up to and during the first Gulf War crisis, which started in late 1990 and ended early 1991. This spike represents an increase in oil prices of $7.45 per barrel from 1988 through 1990.

2. Note the spike occurring now, in the midst of the Iraqi disarmament crisis. This spike — from early 2002 to late February 2003 — represents an increase in oil prices of $13.87 per barrel.

Oil is unusually volatile compared to other commodities; that is, it is particularly susceptible to certain political forces. And it is most susceptible to the international factors that would appear to make oil production and refinement more difficult — and therefore more scarce. Yet, despite dire warnings that permanently high prices would result from anti-American sentiment accompanying the first Gulf War, the 1990s turned out to be a decade of low-cost oil. Ultimately supply-side forces come into play and drive oil prices downward (like most commodities in a growing economy).

If historical patterns hold, the cut in the tax cost of capital which is likely to occur with the passage of President Bush's economic package will be supplemented by a “tax cut” in the cost of industrial production and transportation in the form of lower oil prices following the Iraqi crisis.

— Jerry Bowyer is a talk show host on WPTT radio in Pittsburgh, Pennsylvania. He can be reached through www.BowyerMedia.com.