www.newsday.com February 16, 2003 Caracas With President Hugo Chávez strengthened and plans to oust him frustrated in the wake of a failed national strike, the Venezuelan opposition is splintered and groping for a new direction. "All they can show for it [the strike] is that they managed to hold together," said Peter Hakim of the Washington-based Inter-American Dialogue, a nonpartisan think tank. "But Chávez has gained in the polls, and the opposition doesn't have any new proposals." The political landscape looked dramatically different in December, when state oil company workers walked out, crippling an industry responsible for 70 percent of Venezuela's foreign revenue. Opposition leaders expected to force Chávez to resign or agree to early elections. They also hoped to undermine Chávez by defeating him in a nonbinding Feb. 2 referendum on his rule. But Chávez withstood the strike, and the supreme court annulled the referendum on a technicality, destroying the opposition's two best weapons. The nationwide strike petered out two weeks ago when most businesses and restaurants reopened. The petroleum company managers, who formed the strike's core, have not returned to work, but they may not have a choice - the government has fired about 12,000 of them. Many of those same people also participated in a strike last April that set the stage for the military coup that ousted Chávez for two days. The opposition is now groping for a way to turn its remaining strength - the people of Venezuela, the majority of whom say Chávez is corrupt, authoritarian and too left-leaning - into a change of government. But the opposition faces a re-energized Chávez. He has gloated over the strike's collapse, saying the opposition has an "F" for failure branded on its forehead and that his "Bolivarian revolution for the poor" will now accelerate. Chávez has also gone on the offensive, threatening to prosecute strikers and proposing limits to the media, which are overwhelmingly against him. Amid the economic devastation left by the strike, Chávez has announced price and exchange controls, which he is expected to use as retaliation. He has said he won't provide "a single dollar for coup-mongers." In a nation that exports petroleum and imports nearly everything else, paying for the purchases with dollars, the government has broad discretion to target opponents. A committee appointed by Chávez will determine who gets to exchange Venezuelan currency for dollars and who doesn't. For example, during the gasoline shortages caused by the strike, Chávez foes protested with "bicycle marches" through the capital. "We [bicycle] importers expect retaliation," said Pablo Herrera, owner of a small wholesale bicycle shop. "We expect we won't be given dollars because we're not bolivarians." The lack of dollars to replenish inventories is "totally strangling the economy," said José Pineda, chief economist for the Venezuelan American Chamber of Commerce and Industry. Small businesses and the middle class have been severely debilitated. Businesses that voluntarily closed in December, confident of Chávez's ouster, are no longer in a position to protest. And without the strike and referendum to rally around, the opposition - a mix of private citizens groups, unions, businesses and political parties - has lost its solidarity. A rift has emerged between the most extreme Chávez foes and moderates willing to negotiate with the government. "Anyone who doesn't support a military coup ... is called a government sellout," said Henry Ramos, head of the opposition Democratic Action party. Opposition groups are now debating two strategies proposed by former President Jimmy Carter: a constitutional amendment to shorten the six-year presidential term and a recall referendum in August, which the constitution allows after the term's halfway point. But Chávez still has ways of blocking those options. For example, the supreme court, which the opposition calls a Chávez tool, could push back the referendum by reinterpreting the starting point of his term, which ends in 2007. "I believe that Chávez will do all he can to avoid elections," said Luis Vicente León, director of the Caracas polling firm Datanalisis. "He has a lot of mechanisms for blocking elections." Leon said polls had shown "since late 2001 that, at a ratio of around 70-30, the electorate would vote against Chávez." Still, Chávez might win if the diverse opposition fielded many candidates. "The opposition is divided amongst any number of candidates, and none of them have Chávez's proven leadership," said parliament member Tarik William Saab of Chávez's Fifth Republic Movement Party. William Dávila, a member of the Democratic Action party's executive committee, acknowledged the opposition dilemma: "If this turns into a debate of ideas, there can never be union." But the key to the crisis' outcome could lie in its economic impact. The state petroleum company is still producing only about half the crude it did before the strike, and analysts predict the gross national product will drop more than 15 percent this year. Unemployment - 16 percent last year - is expected to rise. Most Venezuelan political analysts, who generally support the opposition, predict the discontented will direct their anger at Chávez. "I think eventually it turns against the government," said Jonathan Coles, president of a Caracas business management school. "People here tend to blame the government for anything."

www.zwire.com February 16, 2003

Wire Report Usually, the economy in Venezuela isn’t of much interest to most people around here. Except now, it’s taking money out of your pocket by contributing to higher prices at the pump. A general strike and lingering recession have taken a heavy toll on the Venezuelan economy, which shrank nearly 17 percent in the final quarter of last year, according to figures released by the central bank on Friday. The nation’s oil sector, which accounts for about a third of gross domestic product, contracted by nearly 26 percent in the fourth quarter as thousands of workers walked off their jobs while the government of President Hugo Chavez worked to restore production. Most of the contraction in the economy was due to reduced oil production, a combination of Venezuela’s adherence to lower production quotas established by the Organization of Petroleum Exporting Countries, followed by the general strike, which began Dec. 2. Venezuela is the world’s fifth-leading oil exporter and is a leading supplier to the United States. The reduced production was one factor in higher U.S. gasoline and heating oil prices this winter. The general strike ended Feb. 4 in all areas except the oil industry. Chavez’s opponents -- a mix of unions, business interests and conservative and leftist political parties -- called for the nationwide work stoppage to press for early elections. The government has restored oil output up to about half of pre-strike levels of 3.2 million barrels per day. Production fell as low as 200,000 barrels per day in December. Meanwhile, Central Bank director Domingo Maza said the government would lift a ban on dollar sales at the end of the month. The freeze was imposed during the strike to protect Venezuela’s foreign reserves, which were reduced by panic dollar buying.

www.newsday.com February 16, 2003 Eleven days ago, on a Wednesday, regular was a cool $1.65.9 a gallon at Pequa Getty on Hicksville Road in Massapequa. The next day it was $1.67.9 - and two days later, $1.69.9. By Monday, it was selling for $1.71.9. By tomorrow, who knows? Inside the office, Tom Lipera, who runs the franchised station, was talking about how he had no say in the matter - prices are set at the corporate level - and how he had no idea where it would end. "Customers used to come in and say, 'Prices aren't going to go up again, are they?'" he said. "Now, their reaction is 'We know it's going up. How much?'" How much, indeed? Just last week, oil prices set a new 26-month benchmark, the highest price ever for the month of February. A barrel of U.S. light crude, used to refine gasoline, reached $35.60, the highest since November 2000. That is about $5 less a barrel than it was before the start of the Persian Gulf War in 1991. The average price for regular was $1.73.9 on Long Island. To think there once was a commercial where a kid and his girlfriend drove to a Gulf station and asked for a quarter's worth of Good Gulf. But while analysts blamed the rise on fears over oil supplies should war break out in the Middle East, the American Automobile Association announced it believes there is no legitimate reason for the price hikes - that it looked "uncomfortably close" to price gouging. As American Automobile Association spokesman Geoff Sundstrom said last week: "The fundamentals do not justify U.S. drivers paying the highest price on record for the month of February." Problem is, out on the street, we are. We are paying for it at the pump. Sometimes, several times a week. "Unbelievable," Ethel Bogdanowich of Amityville said as she topped her tank last Thursday morning at Pequa Getty. The damage? Try 5.815 gallons of regular - for $10. "I have to go to work, so I have to get gas. I don't have much of a choice. It's beyond ridiculous, these prices. Where is it going to end?" At another pump, Massapequa resident Maureen Zinkiewicz sat behind the wheel of her maroon Infiniti G35 as the station attendant filled her tank with regular. A sales representative for A.J. Bart & Son, a printing company in the Williamsburg section of Brooklyn, she has clients throughout the city - and drives a minimum of 70 miles a day. She was holding a $50 bill in her hand. Her car took 18.488 gallons. Her charge was $34. "I know everybody is thinking that there is going to be a war with Iraq - and that the prices are going up because of that," she said. "But, you also hear that isn't the reason. That there is no shortage. That the oil companies don't have to raise the prices as much as they are. ... All I know is I drive at least 70 miles a day. My husband drives at least 70 miles a day. I need the car. I need to get gas. So does he. We have no choice." Behind the counter at the Sunoco station on Montauk Highway and Bayview Avenue in Amityville, the manager, who is from Turkey and asked he be identified only as Okan, said the prices might be going up because of the oil crisis in Venezuela, because of the threat of war with Iraq - or simply because these are the prices the market will bear. Outside, his station had 87-octane regular selling for $1.77.9 a gallon, 89-octane for $1.89.9, 93-octane for $1.95.9 and its 94-octane gasoline, Sunoco Ultra, at an obscene $2.15.9. I wish they weren't so high," Kristin Dascole of Amityville said as she filled the tank on her black VW Jetta: 12.327 gallons, $21.93. "But, I'm not going to worry about it because there are so many more important things to be worried about now." Like the renewed threat of terrorist attacks on New York. Like possible war in the Middle East. "Like what's going on in the world," she said. For now, we all remain at the mercy of the pump prices. As long as we need to drive. Sure, we could take the train. Or a bus. Or ride a bike or walk. But, some of those alternatives will not get us where we need to go when we need to get there. And the bottom line is we are a car culture here on Long Island with about 2 million drivers. Our communities are arranged so we must drive. Still, despite the rising prices, veterans of the gas wars - guys like Lipera, who was pumping gas at a Mobil station in Rockaway Beach during the gas crisis of 1973 - said we shouldn't fear it will ever get that bad again. Where we had lines that ran on for blocks. Where we were only able to buy gasoline on odd or even days, depending on our license plate numbers. All the suppliers tell you there is plenty of gas in reserve, that the oil companies have more than they need," he said. "For years, that is all I've been hearing - and, I've never heard anything else." So, why do the big oil companies continue to raise the price of a gallon of gas then, he was asked. "I guess," he said, "because they can."

www.kansas.com Posted on Sun, Feb. 16, 2003 BY SUDEEP REDDY Dallas Morning News

In 1973, oil was used as a political weapon in the Arab embargo. In 1979, the Iranian revolution disrupted production.

Today, as a possible war with Iraq approaches, fears of reduced oil supplies from the Middle East -- combined with a shortfall from Venezuela -- have sent crude prices soaring again.

Is this the precursor to the next energy crisis? Or just a short-term blip that will pass quickly?

Experts agree that today's oil market is one of the most fragile in decades. But they say oil-consuming nations have learned lessons that could help prevent another full-blown crisis.

"The world of the emergency physical shortage is not likely to emerge the way it did in the '70s," said Amy Jaffe, senior energy adviser at Rice University's Baker Institute for Public Policy. "We might see some giant psychological price we haven't seen in years, for some short period of time. But I don't think it would last that long."

Oil prices have moved higher as the war drums have gotten louder. Crude oil for March delivery closed Friday at $36.80 a barrel on the New York Mercantile Exchange, up about 80 percent from a year ago.

That worries economists. Nine of the country's 10 recessions since World War II were preceded by sharply higher oil prices.

"It's very likely that the current oil prices are contributing to the weakness of the U.S. recovery," said Stephen Brown, director of energy economics at the Federal Reserve Bank of Dallas.

Oil prices between $30 and $40 a barrel are "a cause for concern," he said. "Once you get above that, it's more than cause for concern. It's kind of a one-alarm fire."

In Venezuela, which was the United States' fourth-largest supplier, a 10-week strike at the state oil company has cut production by two-thirds. As a result, commercial U.S. supplies are at a 27-year low -- a point at which refineries could face shortages.

The United States is more dependent on oil imports today than it was in the 1970s. And the world's excess production capacity is 2 million barrels a day, the U.S. Energy Information Administration said earlier this month.

That's the equivalent of Iraq's production, which would fall sharply if war breaks out. In other words, the industry would be hard-pressed to replace a shortfall.

"Oil markets now are as tight as a fully stretched rubber band," the energy administration said. "Whether the rubber band breaks or not will largely depend on the pace of demand in coming weeks."

Gas prices are on the rise nationwide. In Kansas last week, the price of a gallon of regular unleaded gas topped $1.60 -- the highest level ever for the state in February.

Even so, prices are relatively low. In 1981, gasoline was $2.70 a gallon in today's dollars, according to the American Petroleum Institute. (The average price at the pump then was $1.35.) In today's dollars, crude oil reached its historic high of about $80 a barrel in 1980. That was after the U.S. Embassy was seized in the Iranian revolution, resulting in lowered production and the refusal of the United States to import Iranian oil.

The 1973-74 Arab oil embargo -- in which Arab countries retaliated against the United States for its support of Israel -- remains among the clearest reminders of American dependence on foreign oil. Drivers had to wait several hours in lines.

But since the 1970s, oil-exporting nations have worked harder to forge business ties with oil-consuming countries. And the American economy and government changed key practices.

"We were less prepared to deal with higher oil prices because we had built an industry, an economy and lifestyle based on cheap energy," said Allen Mesch of PetroStrategies Inc. "We became sloppy in its use. That meant that when energy prices went up, we were much more exposed to those prices" and their effect on the economy.

Unlike the crippling crises of the 1970s, today the United States and other oil-consuming countries have strategic stockpiles and joint conservation policies that could temper higher oil prices.

"In the '70s we had no one," said Jaffe of Rice University. "No country had strategic stocks, and there was no ability to have a policy to respond to an emergency.... We actually did learn something from '73 and '79, and we have never actually had to test the system from what we learned."

Plans for the U.S. Strategic Petroleum Reserve were launched after the 1973-74 embargo. Construction began in 1977. The salt caverns that make up the reserve -- in four locations in Texas and Louisiana -- have about 600 million barrels of oil.

The emergency system can pump about one-fifth of daily U.S. consumption for 90 days before slowing down.

The first emergency release was in January 1991, as the elder President Bush launched Operation Desert Storm.

If another war breaks out in Iraq, analysts expect the new Bush administration to release oil from the reserve to temper the market reaction.

Military events in the first few days of a war will be crucial for the oil markets. Iraqi forces have reportedly started rigging oil wells with explosives, as part of a "scorched earth" plan to destroy resources.

And any conflict in the Middle East raises worries about collateral damage -- from terrorism against tankers and oil-export terminals, blocked shipping lanes, or even a full-blown attack against other oil-producing countries.

"What drives a lot of fears from people who are responsible for buying this oil is, can they get it where they need to?" said Mark Baxter, director of Southern Methodist University's Maguire Energy Institute. "Is this thing going to escalate into the adjoining Persian Gulf area?

"The uncertainty stalks us from many different angles," he said.

www.canoe.ca Sunday, February 16, 2003 By TODD NOGIER, BUSINESS EDITOR

 It's looking like a tale of two economies. Soaring oil and natural gas prices have begun to churn up concern in Central Canada about how consumers will get hit in the pocketbook. Gasoline prices are hovering near record highs and home heating bills are increasing. But that's only the beginning. A sustained high oil price could seriously curtail consumer and business spending, economists say. "Most consumers just basically have to swallow the increases," said Douglas Porter, senior economist with BMO Nesbitt Burns. "Effectively what happens is -- no doubt about it -- it hammers confidence and it does tend to crimp spending on other things, places where consumers can cut back, so discretionary spending does feel the pain in the short term," he said. But the opposite is true in Alberta, where oil and gas are the lifeblood of the economy. Rising oil and gas prices boost oilpatch activity and bolster the bottom line of the province's big energy companies. That trickles down to heightened job security of energy workers and rising salaries. Momentum in that sector boosts others such as retail, construction and professional. The result: As other regions of the country watch their economies falter, this one gets a shot in the arm. "I suspect the impact of high oil prices will be negative for Central Canada and positive for Alberta," said Craig Alexander, chief economist of the TD Bank. Oil prices have been steadily rising since last fall and closed at $36.80 US a barrel on Friday, its highest since September 2000. Porter said a one-third increase in energy prices, which is what's expected, would take about two percentage points from the level of consumer spending in Canada. But retail spending in Alberta is forecast to rise, contributing to a boost in GDP growth here to about 4% this year. Economic growth in Canada is forecast to hover under 3%. "Clearly, when you have one full percentage point difference in growth, there really is a dichotomy in how soaring energy prices affect the different regions within Canada," said Alexander. In fact, the dichotomy can even feed upon itself. During the last energy price spike two years ago, Alberta led the nation in growth, contributing a massive increase in the number of job seekers migrating to this province. EXPERTS SPLIT Demand for housing here skyrocketed and that growth put pressure on governments to heighten spending for roads and highways, as well as for schools and other services. Higher royalties gives the Alberta government the financial clout to hike spending to deal with the pressures. That adds to economic growth. The experts are split on whether oil and gas prices will remain as high as they are now. Alexander said if war breaks out in the Mideast, oil prices could jump to $40 or $50 US a barrel, then remain at those levels for a short time before plunging back down to $22. Natural gas, much more dependent on weather, is likely to begin its drop-off within weeks. Other analysts point to the possibility prices could stay high with a slow ramp-up in production from Venezuela after its strike. U.S. inventories are at their lowest levels since 1975. High prices could dampen Canada's economic growth by a bit less than half a percentage point, predicts Alexander. "I don't think we're in danger of slipping into recession, even if these prices stick around."