Posted on Mon, Dec. 30, 2002 NEDRA PICKLER Associated Press

WASHINGTON - About a quarter of the world's countries struggled with armed conflict this year, mostly low-intensity battles against terrorists or guerrillas, the kind of conflict that poses the greatest threat to global stability, according to a report released Monday.

It says the U.S. military is ill-equipped for such warfare.

The report, issued by the conservative National Defense Council Foundation, found 53 countries struggled with conflict during 2002, six fewer than last year. But F. Andy Messing Jr., the author, said an even deadlier threat is posed by potential foes of the United States secretly developing chemical, nuclear and biological weapons.

"Right now the Pentagon is fighting wars that have morphed over the past few years," said Messing, executive director of the Alexandria, Va., think tank and a former Army Special Forces officer. "But they still have a predominance of conventional warfare thinking, and that's just not satisfactory."

The foundation annually surveys 193 nations.

Its report suggests the United States should enhance intelligence activities with pre-emptive special operations, thoroughly vetted assassinations and psychological and anti-guerrilla operations. Messing said the goal should be to use the lowest amount of force to put an end to a conflict.

"The reason this is important is the proliferation of nuclear weapons; you don't want to trip the nuclear trip wire," he said.

Christopher Hellman, a senior analyst at the Center for Defense Information, a more liberal research group that has issued reports skeptical of increased military spending, agrees that the United States is not equipped to deal with low-intensity conflict. He said, however, that pre-emptive action, especially the assassination of political figures would set dangerous precedents.

"We have studiously avoided assassinations for a very simple reason: by and large, our political leadership is way more vulnerable to that type of activity than the Saddam Husseins of the world," he said.

The report said sub-Saharan Africa and the Middle East remain the most war-prone areas. War in Afghanistan spilled over into other South-Central Asian countries "like a cancer in the region" to create growing unrest there.

Iraq is considered the site of the most dangerous conflict because development of nuclear, biological and chemical weapons "is almost a foregone conclusion," the report said.

The foundation's report added 10 countries this year to its list of conflict zones, including Jordan, Kuwait, North Korea and Venezuela. It removed 16 nations from the list, including the United States, Malaysia, Macedonia, Sierra Leone and Yugoslavia.

Its criteria for conflict include political, economic and social unrest as well as military.

The report said the "stupidest conflict" occurred in Nigeria, where a newspaper reporter wrote that Islam's founding prophet Mohammed would have approved of staging the Miss World pageant in that African nation and might have wanted to marry a contestant. The story sparked Muslim rioting and Christian retaliation in which more than 200 people were killed. The pageant was relocated to London.

On the Net: National Defense Council Foundation: www.ndcf.org

Oil prices push higher by worries over Venezuela, Iraq, leaving global economy with new year hangover.

By Daniel Rook - LONDON Oil prices hit new highs above 30 dollars a barrel Monday on the back of a strike in Venezuela and the prospect of war in Iraq, putting a global economic recovery in early 2003 in jeopardy, analysts warned.

Oil prices marched up to new 15-month highs here in early trading as a strike in Venezuela that has paralysed crude shipments entered a fifth week and a US military build-up continued in the Gulf.

The price of benchmark Brent North Sea crude oil for February delivery rose to 30.68 dollars a barrel from 30.16 at the close of the previous session.

The last time prices were so high was in the immediate aftermath of the September 11, 2001 terrorist attacks in the United States.

In New York, the reference light sweet crude February contract scaled a two-year peak above 32 dollars a barrel on Friday.

"The continued, protracted situation in Venezuela and increased troop movements in the Gulf provided the support for the market," said Commerzbank analyst David Thomas.

"There are ever-increasing concerns about military action in Iraq," he added.

The price rally is good news for oil producers that rely heavily on oil revenues to keep their economies and public finances in good shape.

But it has set alarm bells ringing in oil-consuming nations.

Motorists are already facing higher prices at the pumps, while companies from manufacturers to airlines are seeing costs pick up.

"It is a concern because higher oil prices essentially act as a tax on consumption," said Commerzbank economist Nick Parsons.

"In a world which is teetering on recession, all that happens is that it eats into firms' profit margins."

Parsons said companies find it hard to raise prices to cover increased costs in times of recession, while consumers are likely to spend less on other goods if gasoline prices rise.

"So I think that's going to dampen world economic growth and that's why we're not looking for any interest rate rises anywhere in 2003," he added.

There was little sign of any respite for oil consumers Monday, as prices pushed higher amid concerns that the strike in Venezuela might not be resolved before any war in Iraq begins.

The loss of Venezuelan and Iraqi exports would deprive the oil market of about five million barrels of oil per day, analysts estimate.

Although members of the Organisation of Petroleum Exporting Countries (OPEC) have pledged to make up any shortfall caused by the loss of Iraqi exports, experts say they would be hard pressed to replace Venezuelan supplies as well if the strike drags on.

Moreover, even if OPEC does agreed to pump more oil, the extra supplies are unlikely to arrive on world markets for several weeks yet given the time needed for members to reach a decision and to ship the oil from the Middle East to the United States.

"Hopes that OPEC will provide more oil will have to wait a while," warned Lawrence Eagles, analyst at brokers GNI.

ALEXANDRA OLSON Associated Press

CARACAS, Venezuela - World oil markets will suffer for some time from the effects of the general strike aimed at toppling President Hugo Chavez, Venezuela's top oil official said Monday.

The 4-week-old strike has shut down key sectors of the economy and created gasoline and food shortages throughout Venezuela, the world's No. 5 exporter. Oil production has plunged from 3 million barrels a day to 260,000 barrels a day.

"For some time, we will have distortions on the world oil markets due to this situation," Oil Minister Rafael Ramirez acknowledged Monday.

The strike escalated Monday as police used tear gas to separate opponents and supporters of Chavez outside the state oil monopoly's headquarters in Maracaibo, the hub of the country's oil-producing West.

Strike leader Carlos Ortega, who leads Venezuela's largest labor federation, called on all citizens Monday to stop paying their taxes.

And secret police arrested National Guard Gen. Carlos Alfonso Martinez, one of dozens who have occupied a Caracas city square for three months in rebellion against Chavez. A handful of people protesting the arrest outside secret police headquarters fled under a hail of rocks thrown by Chavez supporters and tear gas fired by police.

The combined influence of Venezuela's crisis and the threat of U.S. war in Iraq sent crude futures to a high of $31.02 a barrel Monday on London's International Petroleum Exchange, and a two-year high of $33.65 a barrel on the New York Mercantile Exchange.

U.S. markets were bracing for higher heating oil prices heading into winter, higher gas prices, and higher prices for all sorts of oil-based products. But reports that the Organization of Petroleum Exporting Countries was considering increasing output by at least 500,000 barrels a day took some heat out of the price.

OPEC's basket of seven crude oils hit a two-year high of $31.06 a barrel Friday, OPEC officials said Monday. Venezuela is an OPEC member.

Venezuela's opposition called the strike to force Hugo Chavez to call a Feb. 2 nonbinding referendum on his presidency, which runs to 2007. Strike leaders hope a poor showing will increase pressure on Chavez to resign. At least 35,000 of the 45,000 employees joined the walkout at Petroleos de Venezuela S.A., the state-owned oil monopoly, aren't on the job.

Opponents blame Chavez for economic contraction of 7 percent in 2002, annual inflation surpassing 30 percent, 17 percent unemployment and chronic political unrest. They charge Chavez is trying to impose a leftist authoritarian government.

Chavez counters his adversaries are trying to mount an "economic coup" and that Venezuela's constitution allows a binding referendum on his presidency next August.

Venezuela's government and opposition have traded charges over the actual state of the nation's crucial oil industry, which represents 30 percent of Venezuela's $100 billion gross domestic product.

Ramirez claimed Monday that oil production was up to 600,000 and 700,000 barrels a day and would reach 1.2 million barrels a day next week.

PDVSA executives say it's impossible for the government to increase production so quickly, even with replacements of field crews, executives, tanker crews and dockhands.

Ramirez also said that Venezuela's largest refinery, the Paraguana complex, should be running at full capacity of 930,000 barrels per day within two months.

Last week, Ramirez said a Venezuela-run refinery in Curacao would be up and running within weeks. But union and management at the refinery, which processes Venezuelan crude and ships gasoline back to Venezuela, say the mammoth facility shut down completely on Friday.

Chavez says his government is importing gasoline from Brazil and Trinidad, though the cargoes amount to little more than a few day's normal demand. Ramirez said the government may import gasoline through January.

The strike has cost $2 billion in lost oil revenue and damage to oil installations, Ramirez said.

The government also is importing food. Colombia sent trucks carrying more than 500 tons of cooking flour. The Dominican Republic sent rice.

Despite Chavez's efforts to break the strike, motorists lined up by the hundreds at the few service stations that had gas. Supermarkets were slowly running out of products like milk and bottled drinking water.

The Organization of American States has been mediating talks to find an electoral solution to the crisis. The next round of talks is set for Thursday.