Garcia and 14-times Major winner Woods have always had a frosty relationship and the Spaniard had to issue an apology on Wednesday after making a "fried chicken" jibe at the world number one at the European Tour's Player of the Year dinner the previous day.
The two players had clashed at the Players Championship in Florida earlier this month when the world number 14 blamed a roar from the crowd watching his American playing partner for an errant shot.
"I'm close to Sergio and to Tiger and I don't know what happened for them to drift apart," Olazabal told Reuters in an interview at the PGA Championship at Wentworth.
"I know people are trying to make a big thing out of it but we are grown men, we can handle things and I'm pretty sure in time everything will settle down, they will shake hands and be friends again.
"It's one of those issues that's not nice to see and we will have to live with it for the next few months I guess."
Olazabal, winner of the US Masters in 1994 and 1999, explained how he had long since patched up his differences with three-times Major champion Harrington.
The Spaniard asked the Irishman's permission to repair two pitch marks on the line of a putt during the Seve Trophy match between Continental Europe and Britain & Ireland in Spain 10 years ago.
Harrington believed it needed a ruling and as he looked around for an official, Olazabal worked on the marks.
When the Irishman queried him about it, the Spaniard angrily conceded the hole and walked to the next tee.
"I've had my share of clashes with some players," said Olazabal. "I had my incident with Harrington at the Seve Trophy in Valencia.
"We had some issues. Certain things hurt you but in time you tend to forget and you eventually put things in perspective.
"Nowadays there is no issue between Padraig and me and that's the way it should be."
Olazabal said Garcia's "fried chicken" jibe was not a racist remark.
"He meant it in a jokey way," he explained. "I don't think he meant it in a bad way but it's true that people can take it the wrong way.
"We saw that with Fuzzy Zoeller a long time ago in the Masters at Augusta. That's the problem these days, you have to be extremely careful what you say because people might take it the wrong way."
Garcia's comment came when he was asked on stage whether he would be inviting Woods for dinner during next month's US Open in Pennsylvania.
"We will have him round every night," said the 33-year-old Spaniard. "We will serve fried chicken."
Fried chicken has become a racial stereotype in the United States when referring to African-Americans - a reference to the days before the abolition of slavery when chicken was believed to be a staple part of the diet.
Garcia's remarks echoed those made by former US Masters winner Zoeller in 1997 when he joked with reporters to tell Woods not to ask for "fried chicken or collard greens or whatever the hell they serve" at the 1998 Champions dinner.
Zoeller was subsequently dropped by two sponsors.
One of Garcia's sponsors, German sportswear group Adidas, has already criticised him for his comment.
Golf equipment company TaylorMade, owned by Adidas, issued a strongly worded statement and left the door open to taking further action against the golfer.
"Sergio Garcia's recent comment was offensive and in no way aligns with TaylorMade-adidas Golf's values and corporate culture," it said.
"We discussed with Sergio that his comments are clearly out of bounds and we are continuing to review the matter," it added, saying it believed Garcia had been sincere in his apology.
- Sports & Recreation
- Sergio Garcia
- fried chicken