www.orlandosentinel.com By Edwin Chen | Washington Bureau Posted January 11, 2003

WASHINGTON -- The Bush administration has begun playing an active, behind-the-scenes role to help resolve the political unrest in Venezuela, amid growing U.S. concern about an oil shortage if there is war in Iraq.

The U.S. participation in brokering an agreement between Venezuelan President Hugo Chavez and his opponents was confirmed Friday by the White House.

The 40-day standoff in Caracas, with widespread strikes organized by Chavez's political foes, has crippled Venezuela's economy.

It has halted petroleum exports, including more than 1.5 million barrels of oil to the United States every day -- about 15 percent of the total the United States imports.

In hopes of ending the stalemate and bringing about early elections in Venezuela, U.S. diplomats led by Secretary of State Colin Powell are working with the Organization of American States and its member nations.

OAS Secretary-General Cesar Gaviria has been mediating the talks in Caracas.

Gaviria's goal, which the White House is backing, is to form a "friends of Venezuela" group that can help develop a compromise to the country's conflict.

The growing U.S. role -- first reported Friday by The Washington Post -- signals that President Bush has overcome his reluctance to becoming involved in the South American country.

In April, amid a short-lived coup against Chavez, the United States was accused of encouraging the plotters, reviving memories of a long and controversial history of U.S. involvement in South America.

Chavez's populist, left-leaning ideology and his anti-U.S. rhetoric did not endear him to the Bush administration.

But the White House denied meddling in Venezuela's affairs.

On Friday, though, White House press secretary Ari Fleischer said, "The United States remains deeply concerned about the deteriorating situation in Venezuela.

The severe damage being caused to Venezuela's economy, as well as the increasing likelihood of violence and civil conflict, requires a solution."

Meanwhile, Chavez threatened to send soldiers to seize control of food-production facilities and also fired 700 workers from the state oil monopoly, hoping to break a 40-day-old strike intended to oust him.

Chavez, a former paratroop commander, told soldiers Friday to be ready "to militarily seize the food production plants" that joined the strike.

He asked state governors belonging to his political coalition to be ready to cooperate.

"This is an economic coup. They are trying to deny the people food, medicine and even water," Chavez told thousands of supporters in western Cojedes state. "They won't succeed."

Fleischer described the U.S. overtures as being "in the early stages."

But he emphasized that "an electoral solution is the direction the United States sees."

Wire services were used in this report. Edwin Chen is a reporter for the Los Angeles Times, a Tribune Publishing newspaper.

cbs.marketwatch.com Commentary: Long-lasting consequences if cartel fails By Joe Duarte Last Update: 12:04 AM ET Jan. 11, 2003

NEW YORK (CBS.MW) -- Are OPEC's days numbered? The possibility is higher than most people are willing to admit.

As the U.S. nears its almost certain invasion of Iraq, and potentially establishes a long term foothold in the Middle East, events are likely to follow that will change the world as we know it perhaps for the rest of the 21st century.

Even as the major media postulates that oil prices could reach $40 to $50 per barrel it is important to note that there is enough oil available to power the U.S. for the near future despite rising prices and the fear of a global energy crisis. The only sticking point is whether consumers are willing to pay the increasing costs of exploration, extraction, and security that will continue to increase as the U.S. embarks on its occupation and reshaping of the Middle East into what it hopes will be a more market friendly, al-Quaida-free region.

More important in the developing story of global energy is what the possible repercussions will be when OPEC collapses or becomes nearly ineffective in its quest to control oil prices.

There are two major political and strategic hot spots in the energy world at the moment, and they are both critical to the survival of OPEC. Whatever comes out of these two important places will have crucial relevance to the price of oil and the way the world does business in the foreseeable future.

First there is Venezuela, where the noose is tightening around the neck of President Hugo Chavez, and his Bolivarian revolution. Chavez' government is out of potential revenue as his oil industry is almost completely inactive, at the same time that his foreign currency reserves are drying up.

The collapse of Venezuela is an important domino in the saga of OPEC since under Chavez it has been the strongest proponent of keeping oil prices high by controlling production.

But instead of unity in OPEC as its champion of austerity has fallen, Saudi Arabia and others are stepping up and offering to increase production, making up for the shortfall and decreasing Venezuela's market share of OPEC production, most likely for a long time. The only country that has shipped any oil or significant aid to Venezuela during the crisis is Brazil, which is not an OPEC member. This is a clear sign of the tenuous loyalty within the cartel and a suggestion of what the future holds if another major member runs into the same problems that have all but killed the Venezuelan oil industry.

Venezuela is beyond repair for several years. But the reasons for its fall are not exclusive. All OPEC countries have similar problems due to their non-Democratic governments and the subsequent creation of true economic class-warfare where oil money usually stays in the hands of the government and the ruling class.

Therefore it is not hard to envision a set of circumstances, either concurrent with, or spurred by the U.S. attack on Iraq, where the streets of Riyadh could resemble those of Caracas, and where oil supply disruption from Saudi Arabia could also occur in a similar fashion to Venezuela.

Is there going to be a 1970s style oil crisis in the United States? Not likely, although the possibility is certainly there. For one thing, the U.S. is a much more energy efficient nation now than it was then. And for another, there are plenty of alternate sources of oil available in non-OPEC producers, although it could take some time to bring them online and to do so could be expensive.

But what many are not counting on is the fact that a war in Iraq could spark major political problems in Saudi Arabia, where Islamic militants are numerous and where the ruling family is increasingly unpopular and facing many internal and external difficulties. The major oil companies have not made a deal with the kingdom for a chance to exploit its natural gas reserves, although negotiations have been ongoing for several years. This is a sign that the smart money is finding it much too risky to do business in the kingdom, and that trouble is already present there.

If there is major trouble in Saudi Arabia, the government will have little choice but turn away from international issues in order to preserve its own country, as the oil rich kingdom could become vulnerable to either an externally or internally mediated regime change of its own. It is there that it could easily lose control of OPEC. As a result, internal production controls on the cartel would weaken and most likely disappear altogether.

Once the uncertainty and the shock of the situation fades, the most likely scenario would be a flood of oil hitting the market soon thereafter, and the collapse of the cartel.

The flood is likely to come from other OPEC countries such as Libya, and Nigeria that are desperate for foreign capital and are trying to win favor from the United States, since they don't want to be the next countries to be invaded as the war against terrorism spreads its wings from a newly established U.S. military fortress in Iraq.

Other members of the cartel are already U.S. friendly and include Kuwait and Qatar, where the U.S. has significant military installations present. Non-OPEC countries would also scramble to increase their market share. Iraq's own oil industry could take months to years to bring back up to maximal production levels, so it would not be a short-term solution.

On a longer term basis, perhaps within the next 12-18 months, the U.S. is likely to see increasing supplies from Russia, which is aggressively improving its infrastructure, including a key pipeline to Murmansk, a Siberian port that remains open year around. Russia has already been quietly shipping oil to the U.S. Strategic Oil supply, with the first shipment arriving in July 2002.

Also being ignored are the tar sand deposits from Canada and the restricted lands under the protection of the U.S. Government in Alaska, the Rocky Mountains and the Gulf of Mexico.

Canada may be a longer-term prospect, as there have been technology issues that have slowed development. But U.S. Government land, regardless of environmental group opposition, is easily attainable supply especially under the pretext of national security.

What's the bottom line? We could easily see a short-term and possibly dramatic spike in the price of crude oil, with gasoline near $2.00 a gallon. But as the U.S. gains control of Iraq and the political problems begin in Saudi Arabia, in the wake of an already powerless Venezuela, a collapse in the price of crude is highly likely sooner rather than later, followed by an economic recovery in the U.S., and to a lesser degree, Europe. The biggest winner of all may be Japan and China, whose economies may benefit most from cheap oil.

What's the fly in the ointment? A major setback in the early going for coalition forces once they decide to invade Iraq.

Dr. Joe Duarte's Daily Market I.Q. is available at www.joe-duarte.com. Dr. Duarte is the author of "Successful Energy Sector Investing."

www.nytimes.com January 11, 2003 By JEFFREY E. GARTEN

PARIS The Bush administration is leaving no doubt that it intends to use the United States' enormous military power to make the world a safer place. But to succeed, Washington must develop a more robust global economic policy as well. Unless our military confrontations lead to something much better for the millions of people who will be hurt, we will have won the wars and lost the peace.

It's true that the administration is aggressively promoting trade liberalization by pushing for new commercial deals with Latin America, as it has recently done with Chile and is now doing in Central America. It is also pressing for more tariff and quota reductions around the world in an omnibus negotiation that it hopes to conclude within two years under the auspices of the World Trade Organization. These efforts are an excellent start. But there are at least four broader challenges the United States must now confront, and with an urgency that the Bush administration has yet to demonstrate.

The first is reinvigorating global economic growth. The world economy is in trouble: corporate investment and trade are slowing, factories are producing more than they can sell, and deflation is threatening many regions. The two potential economic engines besides the United States — Germany and Japan — are stagnating. Big emerging markets, from Indonesia to Brazil, are in deep trouble.

America's economy is the world's most powerful by far, accounting for almost a third of global demand these days, but even if we grow at a healthy rate this year, the United States by itself cannot create a sustainable international economic recovery. Our own revival depends on the health of our companies, and that in turn depends in part on expanding foreign markets. Overseas sales of our goods and services made up at least 25 percent of our economic growth in the 1990's. Moreover, because many of our top companies — Intel, Coca-Cola, Johnson & Johnson, for example — rely on Europe, Japan and developing countries for more than 30 percent of their revenues, stronger foreign economies are important to the health of our stock markets, the principal financing vehicle for corporate America's expansion.

Washington must bring together its economic partners — the Group of 7 nations made up of Canada and Japan and those in the European Union — to get the global economy moving again. The United States, which is already running huge budget deficits and has lowered interest rates to levels not seen in generations, has little room to maneuver. But it can encourage the European Central Bank, Europe's equivalent of the Federal Reserve, to lower its relatively high interest rates, since inflation on the continent is not nearly the threat that stagflation is. The European Union must also let up on its growth-constricting demands that Germany, Italy and France restrict spending and, in some instances, raise taxes. The United States and Europe can push Japan to restructure its growth-strangling bank debts.

Second, there will soon be an acute need to rebuild countries that are either defeated or disintegrating. The estimates for reconstructing Iraq, for example, range from $120 billion over 10 years, in the case of a very short war, to $1.2 trillion after a prolonged conflict, according to extensive work by the economist William Nordhaus. This amount does not include the costs of the administration's vision of spreading democratic and free market institutions in the gulf region.

The job of economic relief and reconstruction will most likely need to be handled by the United Nations, but substantial American financial support will be essential. Given budget deficits at home, this will be no easy task. Will this money come from domestic programs or from foreign aid already promised to others? At the least, the administration needs to work with Congress to incorporate the requirements in planning — something which Mitchell E. Daniels Jr., director of the Office of Management and Budget, has been reluctant to do.

One problem is that there is no single agency in Washington capable of overseeing the extensive United Nations efforts that must be mounted. One needs to be created, just as the Economic Cooperation Administration was established in 1948 to oversee the Marshall Plan. Like it or not, we are entering a decade of political and military tension, and nation-building is going to be a major part of America's response.

Third, we need to prepare for all-too-possible international economic crises. A major run-up in oil prices in reaction to turmoil in Venezuela and Iraq has already begun and could send the global economy into a deep recession. The United States should be working with the European Union and Japan to release emergency oil reserves if oil prices spiral out of control. It should be encouraging Russia to expand production, too, by promising we will buy Moscow's supplies well into the future.

  Another crisis could involve the dollar, which was down 15 percent against the euro in 2002. If our trade deficit continues to soar and foreigners get nervous, they could dump their dollars. It would help if Washington could persuade the European Central Bank to lower its interest rates — which it should do anyway to stimulate economic growth on the continent — and make the euro less attractive as an alternative to the dollar. Beyond that, Washington, Brussels and Tokyo will have to be prepared to coordinate purchases of the dollar if it goes into free fall.

Latin America could also provide the spark for a global financial debacle. After all, Argentina and Venezuela are in deep trouble, and Brazil's economy is fragile at best. In 1997, a currency collapse in Thailand set off a global financial meltdown. The lesson is that Washington and its economic partners had better focus more on what's happening south of the Rio Grande.

Finally, the United States will have to give much more attention to helping developing countries, the very nations in which so much of today's turmoil exists, get a fairer deal from globalization, which has so far disproportionally benefited rich countries. This means not only negotiating trade agreements but also improving the World Trade Organization's ability to settle trade disputes and to give technical assistance to struggling countries overwhelmed by the blizzard of new trade laws in the last decade. It also means helping the World Bank and its regional counterparts deal with poverty more effectively, rather than just criticizing their performance, which is what Washington so often does.

Admittedly, the Bush administration has never shown much interest in multilateral diplomacy except when other countries press it to the wall, as they have with Iraq. But in the economic realm, there is no choice but to seek partners.

In the immediate aftermath of World War II, the United States pushed for the establishment of the International Monetary Fund and the World Bank, and coordinated the Marshall Plan with European nations. Washington realized then that economic stability and prosperity were essential to a country's security. It's true today, too.

Jeffrey E. Garten is dean of the Yale School of Management and author of "The Politics of Fortune: A New Agenda for Business Leaders.'' He held economic and foreign policy positions in the Nixon, Ford, Carter and Clinton administrations.

www.bayarea.com Posted on Fri, Jan. 10, 2003

CARACAS, Venezuela (AP) - President Hugo Chavez threatened today to send soldiers to seize control of food-production facilities and also fired 700 workers from the state oil monopoly, hoping to break a 40-day-old strike intended to oust him.

Chavez, a former paratroop commander, told soldiers to be ready ``to militarily seize the food production plants'' that joined the strike. He asked state governors belonging to his political coalition to be ready to cooperate.

This is an economic coup. They are trying to deny the people food, medicine and even water,'' Chavez told thousands of supporters in western Cojedes state. They won't succeed.''

Venezuela's opposition began a general strike Dec. 2 to demand that Chavez resign and call elections. The strike has caused food shortages.

Rafael Alfonzo, president of Venezuela's food producers chamber, blamed the shortages on Chavez for refusing to cede to opposition demands. He insisted food makers are producing staples but said fuel shortages have hampered deliveries.

It's totally false that we are denying the people food,'' Alfonzo said. We ask governors and soldiers to understand that the only one to blame for food shortages is the government.''

The strike also has paralyzed the world's fifth-largest oil exporter, where at least 30,000 of the state company's 40,000 workers are off the job.

Chavez fired 700 workers from the state oil monopoly today after earlier firing 300.

Chavez has tried to jump-start oil production. Crude output is estimated at about 400,000 barrels a day, compared with the pre-strike level of 3 million barrels. Exports, normally 2.5 million barrels a day, are at 500,000 barrels. Venezuela is able to export more than it produces because it has been shipping stockpiled oil.

Today's developments inflamed an already unstable situation in this South American nation. Chavez opponents took to the streets and a bank strike prompted authorities to suspend dollar auctions for a second straight day after Venezuela's currency fell.

Chavez also threatened to maintain a military seizure of the independent Caracas police force -- even though the Supreme Court ordered the government last month to restore the department's autonomy. Troops seized the force in November.

Chavez accuses police -- who report to an opposition mayor -- of brutally repressing his supporters during protests and allegedly killing two supporters Jan. 3.

Police say Chavez street thugs instigate the violence.

The police will stay under (military) seizure,'' Chavez said, because there are groups of assassins -- truly subversive groups -- that break the law with a police uniform and weapons. That must not be allowed.''

In Washington, the Bush administration was talking with other nations in the Americas on ways to end the strike, White House spokesman Ari Fleischer said today.

We remain deeply concerned about the deteriorating situation in Venezuela,'' Fleischer said. Asked about a possible U.S. role in a breakthrough, he said, An electoral solution is the direction the United States sees.''

The general strike has caused a sharp decline in Venezuelan exports to the United States, which normally average 1.5 million barrels daily. Government opponents, including the nation's largest labor union and business chamber, are demanding Chavez resign if he loses a nonbinding Feb. 2 referendum on his rule.

But lack of funding and disorganization in Venezuela's elections council could dash opposition hopes.

Technically, logistically, it's impossible to hold the referendum on February 2,'' said Romulo Rangel, one of five council directors. There is no clear leadership within the board, which means nobody is leading the activities.''

Chavez says Venezuela's constitution permits only a binding referendum on his presidency halfway into his six-year term, or August.

Opponents stage daily street marches and urge tax evasion to force Chavez's resignation. Negotiations led by Cesar Gaviria, secretary general of the Organization of American States, have made little progress.

www.salon.com

By CHRISTOPHER TOOTHAKER

Jan. 10, 2003  |  CARACAS, Venezuela (AP) -- President Hugo Chavez threatened Friday to send soldiers to seize control of food-production facilities and also fired 700 workers from the state oil monopoly, hoping to break a 40-day-old strike intended to oust him.

Chavez, a former paratroop commander, told soldiers to be ready "to militarily seize the food production plants" that joined the strike. He asked state governors belonging to his political coalition to be ready to cooperate.

"This is an economic coup. They are trying to deny the people food, medicine and even water," Chavez told thousands of supporters in western Cojedes state. "They won't succeed."

Venezuela's opposition began a general strike Dec. 2 to demand that Chavez resign and call elections. The strike has caused food shortages.

Rafael Alfonzo, president of Venezuela's food producers chamber, blamed the shortages on Chavez for refusing to cede to opposition demands. He insisted food makers are producing staples but said fuel shortages have hampered deliveries.

"It's totally false that we are denying the people food," Alfonzo said. "We ask governors and soldiers to understand that the only one to blame for food shortages is the government."

The strike also has paralyzed the world's fifth-largest oil exporter, where at least 30,000 of the state company's 40,000 workers are off the job.

Chavez fired 700 workers from the state oil monopoly Friday after earlier firing 300.

Chavez has tried to jump-start oil production. Crude output is estimated at about 400,000 barrels a day, compared with the pre-strike level of 3 million barrels. Exports, normally 2.5 million barrels a day, are at 500,000 barrels. Venezuela is able to export more than it produces because it has been shipping stockpiled oil.

Friday's developments inflamed an already unstable situation in this South American nation. Chavez opponents took to the streets and a bank strike prompted authorities to suspend dollar auctions for a second straight day after Venezuela's currency fell.

Chavez also threatened to maintain a military seizure of the independent Caracas police force -- even though the Supreme Court ordered the government last month to restore the department's autonomy. Troops seized the force in November.

Chavez accuses police -- who report to an opposition mayor -- of brutally repressing his supporters during protests and allegedly killing two supporters Jan. 3.

Police say Chavez street thugs instigate the violence.

The police "will stay under (military) seizure," Chavez said, "because there are groups of assassins -- truly subversive groups -- that break the law with a police uniform and weapons. That must not be allowed."

In Washington, the Bush administration was talking with other nations in the Americas on ways to end the strike, White House spokesman Ari Fleischer said Friday.

"We remain deeply concerned about the deteriorating situation in Venezuela," Fleischer said. Asked about a possible U.S. role in a breakthrough, he said, "An electoral solution is the direction the United States sees."

The general strike has caused a sharp decline in Venezuelan exports to the United States, which normally average 1.5 million barrels daily. Government opponents, including the nation's largest labor union and business chamber, are demanding Chavez resign if he loses a nonbinding Feb. 2 referendum on his rule.

But lack of funding and disorganization in Venezuela's elections council could dash opposition hopes.

"Technically, logistically, it's impossible to hold the referendum on February 2," said Romulo Rangel, one of five council directors. "There is no clear leadership within the board, which means nobody is leading the activities."

Chavez says Venezuela's constitution permits only a binding referendum on his presidency halfway into his six-year term, or August.

Opponents stage daily street marches and urge tax evasion to force Chavez's resignation. Negotiations led by Cesar Gaviria, secretary general of the Organization of American States, have made little progress.