SYNOPSIS: Krugman discusses the now-failed coup in Venezuela and the U.S.'s growing dependence on Persian Gulf oil

DOBBS: Jerrold Green. Oil prices today jumped more than a dollar a barrel. Boosting those prices, Secretary of State Colin Powell's failure to achieve a cease-fire, as well as shrinking world supplies. Traders saying Hugo Chavez' return to the presidency in Venezuela also continues to raise some anxiety, as well as prices, in the world markets. Light sweet crude oil up a $1.19, settling at $25.94 a barrel. American policy on Venezuela being questioned by many, including economist Paul Krugman, in an article he wrote for "The New York Times." Paul Krugman, a columnist for "The New York Times" and a MONEYLINE contributor, as well. Paul, good to have you here.

PAUL KRUGMAN, "NEW YORK TIMES" COLUMNIST: Good to be on.

DOBBS: Let's turn first to Venezuela. I think you've styled it as the Bush administration losing Latin America. You're being a little tough, aren't you?

KRUGMAN: Yes. But, here's my basic reaction. If the Cuban minister of propaganda had wanted a screenplay to discredit U.S. policy in the region, it would have looked a lot like the events of the last four or five days. It was amazing. We really screwed up big time.

DOBBS: Well, the screw-up, as you put it, was at least, according to the White House, simply not doing what? Because they did not, they say, support a coup. They did nothing to dissuade it, certainly.

KRUGMAN: They certainly did nothing to dissuade it. The initial statements out of the White House appeared to endorse the coup. There was nothing in there -- you know, not even the boilerplate about the importance of democratic process. It just sounded like, oh, great, somebody we don't like is out of power. We don't really care how. And then there are further details. The more we learn -- you know, I don't know -- everyone in Latin America thinks we engineered it. There's no real evidence of that. But there's a lot of small things that we did startlingly wrong. I mean, there was a briefing given by the assistant secretary of state for Latin America, Otto Reich, in which just sort of gratuitously, he insulted the Argentines. Said, well, you know, you've had lots of chances with government, how is that different? This was (UNINTELLIGIBLE) business. And it also -- given our history with Latin America, came across really sinister.

DOBBS: Sinister, and in terms of the fact that Hugo Chavez has been hardly supportive of U.S. interests, it doesn't really surprise you, does it, that Washington would not be displeased with his, albeit a short one, departure from power?

KRUGMAN: I've been talking with Latin American friends. And we're all agreed that Chavez is a goon and a dinosaur. That's the actual words that everyone agrees fit him.

DOBBS: Well, this was a better group of thinkers than some might have thought, that came to that conclusion.

KRUGMAN: Right. But he's also the legitimately elected president. And there are rules about these things. And we not only allowed ourselves to appear to be supporting a military coup, but it was a particularly stupid coup. The words that people are using down there is "country club coup." Lots of people are really afraid of Chavez. He's a bad guy -- church groups, union groups. The coup leaders said, OK, great, let's have a government. It will be just corporate executives and big land owners. Incredible.

DOBBS: Well, let's turn to the issue -- and this obviously influences world oil markets and potentially the world oil market and economy. How concerned are you as a result of all that has transpired in Venezuela, all that is happening in the Middle East?

KRUGMAN: Venezuela is not big enough to really be disastrous. Iraq itself is not big enough. Things are pretty dicey in the Middle East and there's a chart I wish people could show. I wish I could do a chart in "The New York Times." It's from the Energy Information Agency, U.S., that shows the Persian Gulf share of world oil supplies, which was about 38 percent in the early '70s, which is what set the stage for the really bad oil crisis. It dropped to about 18 percent by the mid 1980s, which set the stage for cheap oil. And it's been creeping -- more than creeping -- it's been rising quite rapidly ever since. We're a lot of the way back. That's dangerous.

DOBBS: It's dangerous. And when you say the Persian Gulf supplies, are you including OPEC nations? Because that's typically broken apart.

KRUGMAN: No, all of the Persian Gulf suppliers are OPEC. This is only part of OPEC. I'm less worried about Venezuela, for example. But the point is that we have got -- we've allowed ourselves to become rather dependent on that region again.

DOBBS: And dependent, at this point, while you are weighing in on Venezuela and world oil supplies, any solutions you might want to offer on the Israeli-Palestinian conflict, as we wrap up?

KRUGMAN: Oh, gosh. Thank God I don't have to solve that one in my column.

DOBBS: All right, Paul, thank you very much. Paul Krugman, thank you. Mission accomplished for the crew of space shuttle Atlantis. It pulled away from the international space station today after a week- long construction project. The crew installed an $790 million girder and rail car that travels across its length. They also dropped off food supplies and mail for the station's three astronaut residents. Atlantis will return to earth Friday.

Originally broadcast, 4.17.02