Luiz Inacio Lula da Silva, the leftist populist who was inaugurated Wednesday as president of Brazil, has been hinting that he doesn’t intend to diverge much from the free-market economic policies that have brought his country eight years of steady growth and stability. Maybe that’s because he doesn’t need to look too far for cautionary lessons.

To the south, Argentina’s corrupt and spineless political elite has spent a year in a futile quest to evade the consequences of its bad financial management during the 1990s, even as the country’s living standard has plummeted.

To the north, an even worse Latin-American nightmare is underway: Venezuela, ruined and riven by the disastrous attempt of populist President Hugo Chavez to remake the country with half-baked socialism, is mired in a political standoff that risks civil war.

Da Silva may have been elected with the votes of Brazilians disillusioned with what Latins describe as the “liberal” economic model of private ownership and free trade; but Brazil’s neighbors are vividly demonstrating how perilous it can be to depart from that model, in the absence of a coherent alternative.

For all the region’s current troubles, nothing approaches the chaos that now afflicts Venezuela. A national strike called by the opposition to Chavez entered its second month Wednesday, with no end in sight. Intended to force the President to resign or agree to early elections, the stoppage has succeeded only in crippling Venezuela’s oil-exporting industry, the world’s fifth largest, which supplies the United States with 15 percent of its imported oil and 10 percent of its gasoline.

World oil prices have risen above $31 a barrel, Venezuelans have had to wait in long lines to fuel their cars, and the government has lost some $1.5 billion in revenue -- and yet the gulf between Chavez and the more than 60 percent of the population that opposes him only grows deeper.

Sadly, neither side is committed to preserving Venezuela’s battered democracy. Chavez, a former coup plotter who was first elected in 1999, helped bring on the crisis with a series of constitutional rewrites and referendums that extended his term to 2007 and concentrated power in his hands; opponents, who include both business and labor leaders, talk of an electoral solution but clearly hope to force the President from office, either through street demonstrations or a military coup.

As the strike drags on, and the risk of violence increases, the crisis is exposing the weakness of institutions and leadership in the American hemisphere.

Last year the much-derided European Union managed to arrest the implosion of Macedonia, another polarized country, with an aggressive and well-coordinated intervention.

But in Venezuela the only help has come from the secretary-general of the Organization of American States, Cesar Gaviria, who has tried to broker a compromise but lacks the resources or the clout to do so on his own.

The Bush administration, distracted by Iraq, has conspicuously stumbled in trying to address Venezuela; other Latin-American nations that could play a role, including Brazil, have been largely passive.

There is not much tradition of collective action in the region, and history has given US intervention a mostly bad reputation. But Venezuelans are stalemated; if nothing is done, a country that is a vital oil supplier and has preserved a democracy through four decades may plunge into anarchy.

If the Bush administration will do nothing, perhaps da Silva can take the lead. The Washington Post

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Associated Press

WASHINGTON — If the United States invades Iraq, there could be oil shortages and gas lines — or an oil glut and falling prices.

Much depends on whether American troops can secure Iraqi oil fields and whether other producers continue the flow of oil uninterrupted.

In the growing drumbeat over war with Iraq, the Bush administration rarely mentions oil, even though Iraq has one-tenth of the world's oil reserves. But a military campaign almost certainly will have a major impact on world markets.

In the event of a war, Secretary of State Colin Powell said recently, "We would want to protect those fields and make sure that they're ... not destroyed or damaged by a failing regime on the way out the door."

The growing prospect of war, combined with the monthlong political strife in Venezuela that is hamstringing that country's oil production, already has caused unease among energy traders.

Last week, prices for crude to be delivered in February jumped to more than $33 a barrel, 65 percent higher than a year ago. The average price of gasoline has risen steadily to more than $1.40 a gallon. On Dec. 26, pump prices in several cities jumped by as much as 20 cents a gallon overnight.   

World oil stocks have been tight and fell sharply last week, the Energy Department says.

"The loss of Venezuelan oil is beginning to hurt," says Robert Ebel of the Center for Strategic and International Studies. "What people are beginning to worry about is suppose the loss of Venezuelan oil continues when we intervene in Iraq."

Together, Iraq and Venezuela produce about 5 million barrels a day. Ebel and other energy experts wonder whether increased production from other countries will be able to make up such a shortfall.

With global production at about 76 million barrels daily, a loss of several million barrels could cause prices to soar, economists say.

Furthermore, nearly 4 billion barrels of oil are in emergency stocks worldwide, including nearly 600 million barrels in a U.S. reserve. If withdrawn at 2 million barrels a day, the U.S. stocks could counter a disruption of 286 days, the administration told Congress this past summer.

WASHINGTON (AP) - What price war with Iraq? If the war goes well, gasoline prices might settle as low as $1.10 a gallon on average, by some estimates. If the oil fields burn, look for prices as high as $4.84, others say. Also possible: The market will simply adjust and prices will stay at today's $1.40-$1.60 range. The wide variance illustrates how much is at stake any decision to attack a country holding at least one-tenth of the world's oil reserves.

But the subject of war and oil is a sensitive one, and the Bush administration has said little about the promise and peril for consumers from the gathering conflict.

"There are enormous ramifications for consumers, given that Iraq's reserves are second behind Saudi Arabia," said Sen. Ron Wyden, D-Ore., who serves on the Senate energy committee. "Now is the time to find out how the administration is going to address this issue."

The frustration crosses the political spectrum.

"This needs to be done in an orderly fashion," said Ariel Cohen, an oil economist with the conservative Heritage Foundation who favors ousting Saddam Hussein - and then, a quick and open sale of Iraqi oil assets to private interests.

"If it's about oil, make the case," said Phyllis Bennis of the antiwar Institute for Policy Studies. "They haven't yet." President Bush's then-chief economic adviser, Larry Lindsey, made part of the case in September.

"When there is a regime change in Iraq, you could add 3 million to 5 million barrels of production to world supply," he said. "The successful prosecution of the war would be good for the economy." But those comments helped cost Lindsey his job. Bush advisers quickly backpedaled, and a couple of months later he was shown the door.

The problem with sizing up the economic and oil consequences is that much of the evidence is shifting. The length and cost of war would depend on support from regional allies - decisions not likely to come until the last minute - and oil payoffs would be easier to predict with accurate statistics, notably absent from Iraq's chaotic government.

Iraq now produces 2 million to 2.5 million barrels a day, with unknown additional amounts smuggled out.

In a world market producing 75 million barrels daily, an extra 3 million to 5 million barrels from a friendly postwar Iraq could bring pump prices in the United States down to $1.10, some economists say.

Once Iraq is producing, "someone else will have to give up something to keep prices at $25 a barrel, the OPEC ideal," said Tom Drennen, an economist at Hobart and William Smith College in Geneva, N.Y. "That means someone will probably cheat, and gas prices will drop to the $1-$1.20 range."

Then there is the worst-case scenario - actually two of them: Saddam levels his oil fields as a final vengeful act, a prediction with a 1991 precedent in Kuwait; and Iraq's fractious population makes governance next to impossible, plunging the entire region into instability.

George Perry, a Brookings Institution economist, recently analyzed bad, worse and worst-case oil disruption scenarios, drawing his conclusions in part from the "price shock" engendered by the 1973 Arab-Israeli war. His worst-case prediction, which factors in the collapse of neighboring governments friendly to America: gasoline at $4.84 a gallon.

Others see too many unknowables to venture a guess. "It's premature to say we're heading for any price spiral, up or down," said Yasser Elguindi, an analyst with Medley Global Advisors in New York.

A functioning Iraqi government with friendly Western companies pumping wells at capacity is not likely to happen soon, said John Felmy of the American Petroleum Institute, an oil industry group. Lacking the most modern equipment for a dozen years, Iraq probably has been using "aggressive production techniques, which can damage wells," Felmy said.

"We haven't been in the country for years," he said, "We don't know what the geology is," especially in the western Desert, where the optimists speculate new wells would allow Iraq to overtake Saudi Arabia as the country with the largest reserves.

Such predictions also assume a world exactly as it is today - something belied by current unrest in Venezuela.

"The loss of Venezuelan oil is beginning to hurt," said Robert Ebel of the private Center for Strategic and International Studies. A defeated Iraq would be expected to make good on outstanding debts to former enemies and allies - Russia alone is expecting a $7 billion payment. The payoffs that would inhibit the rapid development of a free-market economy.

The pessimists' prediction of a price shock is similarly based on unknowables, for instance in presuming that war would automatically stoke revolution in the region - or that Saddam would have the time to destroy Iraqi wells.

The U.S. government says protecting Iraqi oil fields is a priority. Most oil producers also have been increasing storage as a cushion.

"It's standard inventory policy," said Henry Lee, an energy specialist at Harvard University's Kennedy School of Government. "Like building up reserves throughout the winter for the driving season, from Memorial to Labor Day."

The U.S. strategic reserve also offers limited protection - the government says it would cover a disruption of 286 days.

By WILLIAM KATES Associated Press Writer

January 6, 2003, 2:52 PM EST SYRACUSE, N.Y. -- It will cost upstate New Yorkers hundreds of dollars more this winter to drive their cars and heat their homes unless President Bush agrees to dip into the nation's oil reserves to help check soaring prices, U.S. Sen. Charles Schumer said Monday.

"This is something we cannot choose to ignore, certainly when people are having to spend hundreds of dollars out of their pockets," said Schumer, standing next to a gas pump at a service station just off the New York State Thruway.

"With oil prices continuing to rise and the possibility of further disruptions, I'd call that an emergency," Schumer said.

Schumer said he was renewing his call on the Bush administration to release oil from the Strategic Petroleum Reserve. The New York Democrat joins a growing number of lawmakers from both parties who are asking the president to use the emergency government reserve to help consumers.

Last week, Bush ruled out using the reserve, which was created in 1975 to deal with oil emergencies and has nearly 600 million barrels of oil.

The president said the reserve should be used only to combat severe supply shortages and not to influence prices. No one at the White House was immediately available Monday to comment about Schumer's remarks.

"For the president to simply tell the world that he will put that oil out there if prices continue to go higher will stabilize prices and bring them down. The prices of oil products are going through the roof," said Schumer, noting that oil futures were up 25 percent since November and at a two-year high.

A month-old strike in Venezuela and unrest in the Middle East, now agitated further by a looming U.S.-Iraq war, have combined to tighten supplies and vault prices higher and higher, Schumer said. Venezuela is the fourth-largest exporter of oil to the United States, providing about 1.5 million barrels a day, or about 14 percent of the nation's total imported oil.

In central New York, that choked market has pushed the average cost of a gallon of gas to $1.56, which is nearly 40 percent higher than last year and is expected to climb another 10 cents a gallon.

"It's cut into my business about 10 percent already," said gas station owner Arthur Hayes, who hosted Schumer on Monday.

"There's not a whole lot I can do about it. I'm on a fixed budget. I can't absorb the increase, I have to pass it along. I hear the complaints from my customers. I know they're hurting but so am I," Hayes said.

Meanwhile, Schumer said the average cost of residential heating oil in central New York was $1.38 per gallon, a 21 percent increase over last year. Federal regulators predict the cost will likely reach as much as $1.50 to $1.55 a gallon this winter.

"Together, this is maybe $600, $700 of real money coming out of the pockets of average people. Over the course of a winter, these increases add up and could really hurt hard working families already struggling in a soft economy," the senator said.

In fall 2000, President Clinton bowed to repeated requests from Schumer and other legislative leaders to tap into the reserve by releasing 30 million barrels over 30 days. Prices quickly fell by over 10 percent and helped stabilize gas prices for nearly a year, Schumer said.

(updated: January 6th, 3:15pm) Senator Chuck Schumer continues to urge the president to reign in the rising cost of fuel. Today he was in Colonie to release new data on Capital Region gas and heating oil prices.

According to Schumer's office, the average home heating bill in the Capital Region will go up $265 this winter. Heating oil prices are already up 18%, and that number is expected to double. Gas prices are expected to increase as much as 50 cents per gallon. The price at the pump is already up 37% compared to last year. Much of the increase is being blamed on the deepening oil strike in Venezuela and the increasing likelihood of war with Iraq.

The numbers do not bode well for local wallets, but Schumer has at least one idea to lessen the impact. The senator wants President Bush to consider tapping the Strategic Petroleum Reserve. The stockpile was created in 1975 to deal with oil emergencies in the United States. Schumer says we are getting there, but the White House does not agree. The Bush administration says it won't even consider using the reserve.

Senator Schumer was at the Super Mart Gas Station on Central Avenue in Colonie to release new price statistics for the Capital Region.

It appears the senator is trying to sway New Yorkers in an effort to get the president's attention.

Reuters, 01.06.03, 11:07 AM ET

NEW YORK, Jan 6 (Reuters) - Merrill Lynch cut its allocation of Venezuelan bonds to underweight from market weight in its model portfolio on Monday as a five-week-old strike by foes of President Hugo Chavez strangles the country's oil production, pummeling the economy.

The investment bank said in a research report that the opposition, which is demanding new elections or Chavez's resignation, and the president remain far away from a solution to the conflict, which keeps pressure on the fragile economy as businesses remain shut and the production of its top revenue source -- oil -- stifled.

Merrill said that no change at the presidential level until August appears to be the most likely scenario for now. Chavez says the constitution does not allow a binding referendum on his rule until August, which marks the halfway point of his current term due to last until 2007.

"In this scenario oil production and economic activity take time to recover and the economy suffers significantly," said Merrill Lynch.

"While our base case scenario does not include an external debt payment crisis, we have to acknowledge that risks are higher." Merrill said the strike has already cost Venezuela's fragile economy an estimated $2 billion to $3 billion. The investment bank said it expects Venezuela's gross domestic product to have contracted 9.2 percent in 2002, due partly to the strike.

The investment bank said it shifted the money from the Venezuela reduction to Ecuador, an oil producer that is benefiting from higher world crude prices.

Ecuador bonds got a boost on Friday when the incoming government of Lucio Gutierrez named respected economic consultant Mauricio Pozo as finance minister, an appointment seen by analysts as opening the doors for Ecuador to clinch a much-needed International Monetary Fund deal.

Tensions remain high in Venezuela following street clashes and shootings in the capital in the past few days, confrontations that left two dead and wounded dozens.

On Monday, Venezuela's share of the J.P. Morgan Emerging Market Bond Index Plus slid 0.75 percent on the day in midmorning New York trading, while Ecuador's portion leaped 4.34 percent in terms of daily returns.