news.ft.com By Carola Hoyos Published: February 27 2003 19:29 | Last Updated: February 27 2003 22:58

Crude oil prices surged on Thursday to almost $40 a barrel in New York, a high not seen since just after Iraq invaded Kuwait in 1990. The $2 jump was fueled by concerns over a lack of US oil supplies ahead of an increasingly inevitable war with Iraq.

The jump, which affected the US benchmark West Texas Intermediate contract far more than its Brent Light London counterpart, proved short-lived, however, with prices retreating to the $37 range by the early-afternoon. One trader described the morning session as one of the “wildest rides” the energy futures market had seen in years.

Commercial stockpiles of US crude oil are smaller than they have been since 1976 and in the past week fell to the minimum 270m barrels needed to keep the US’s vast system of refineries, pipelines and storage tanks running smoothly.

Meanwhile, a cold winter gripping the US Northeast has cut stored heating oil to dangerously low levels, more than 30 per cent below the inventories available last year.

Washington has tried in vain to calm the recent jitters in the oil market by announcing that it would consider in case of a war with Iraq to release some of the 600m barrels of crude oil it stores for emergencies.

The Opec oil cartel has also tried to reassure markets, raising its output quota in January and promising to use spare capacity to cover a possible reduction of 2m barrel a day from Iraqi exports in the event of US military action in Iraq.

But the world faces supply interruptions not only from the Middle East.

George Beranek, analyst at PFC Energy, a consulting firm in Washington, says: “Invetories are low enough that the market really is working without a safety net, particularly in the US. If you have renewed problem in Venezuela or problems in  Nigeria in the run up to their April presidential elections, then you are going to have a serious problem very quickly.”     

The effect of the high oil price on the world economy will largely depend on the length of time it continues at current levels. For many countries, a major mitigating factor has been the recent drop in the value of the dollar, the currency in which oil is traded.   

“The real problem comes if these problems last a long time. One month should not be a problem, three months will have an impact in developing economies and 6-12 months it could be serious,” Mr Beranek says.

On the down side, the release of extra Opec crude and stockpiles held in storage in Europe, Japan and the US could also swamp the market. Prices could drop to well below $20 a barrel if a short war in Iraq causes little damage to the country’s oil fields and the worries about oil supply interruptions in countries such as Venezuela and Nigeria prove unfounded.  

www.heraldsun.news.com.au This story is from our news.com.au network Source: AFP 28feb03

OIL prices have rocketed up to almost $US40 ($65.90) a barrel in New York for the first time since the 1990-91 Gulf War. Benchmark light sweet crude for April delivery surged more than $US2 to $US39.99 in late morning trade, a level not seen since October 1990 in the wake of the Iraqi invasion of Kuwait.

It later fell back to $US39.25 a barrel, still up $US1.55 from the previous close.

Traders chased prices higher on fears that a war in Iraq could be just around the corner, threatening disruption to Middle East supplies, while US oil stocks are close to a 27-year low.

"A potentially supply-disruptive war may begin at any moment," said Mike Fitzpatrick, an oil trader at Fimat USA in New York.

The price of reference London Brent North Sea crude for April delivery rose to $US33.20 in late trading from $US33.07 at the close of the previous session.

"Crude oil inventories remain about as low as they possibly can be in the States and then you throw in on top of that the geopolitical concerns and you've got the recipe for crude moving up towards $US40," said JP Morgan analyst Paul Horsnell.

"In terms of the key oil products, we're just running out."

Analysts said the decision taken last month by the Organisation of Petroleum Exporting Countries (OPEC) to pump more oil to compensate for a strike in Venezuela had come too late too quell a price spike.

"We had always warned that the market was on a knife-edge: additional crude supplies were expected to arrive in the coming weeks, but it was unclear whether they would arrive in time to prevent a squeeze in prices," said GNI-Man Financial analyst Lawrence Eagles.

"They did not. The squeeze is now well and truly under way, underpinned by cold weather demand and a surge in natural gas prices."

The market found little solace in comments from the OPEC oil cartel reassuring consumers it had four million barrels of spare capacity available to avert supply shortfalls and would not use oil as a weapon if war broke out against Iraq.

OPEC Secretary General Alvaro Silva Calderon "talked about having 4 million barrels a day of spare capacity and nobody really believes that", said Horsnell.

"I think JP Morgan is more optimistic than most on how much spare capacity there is within OPEC and we don't think there's much more than two (million bpd) left and there are others who have lower numbers than that.

"There's not really an awful lot the OPEC secretary general can say at this point to drag things down too quickly."

www.vheadline.com Posted: Thursday, February 27, 2003 By: Patrick J. O'Donoghue

Former Petroleos de Venezuela (PDVSA) manager Mireya de Amaya admits that it has been difficult to keep up the community fund to help employees and workers sacked by the government in the course of the oil sector stoppage that nearly crippled the economy.

The fund increased after friends and people close to the sector deposited donations in a trust fund.

"Given the size of the dismissals, we are now calling on all Venezuelans and companies to contribute … the total amount received so far is 930 million bolivares.”  Aid consists of economic help of between 150,000-200,000 bolivaries, food basket or health care.

According to de Amaya, dismissals are around the 16,000 mark … "15% belong to the day payroll, 80% the greater payroll and 5% executive … 60% of the greater payroll include lower economic levels such as supervisors, foremen and the like.”

Posted: Thursday, February 27, 2003 By: Patrick J. O'Donoghue

The Inter American Human Rights Court (IAHRC) has stated that the Venezuelan State has not fully complied with the provisional measures the Court issued on November 27 to protect the lives of Luis Enrique Uzcategui (Falcon), 8 Cofavic defense attorneys (Liliana Ortega, Yris Medina Cova, Hilda Paez, Maritza Romero, Aura Liscano, Alicia de Gonzalez and Carmen Alicia Mendoza) and 5 Radio Caracas TV (RCTV).

• The Court has given the Venezuelan government until March 22 to reply.

State representative, Jorge Duarte has replied that in the case of Cofavic, the State has expressed concern for their safety and the basic problem has been one of implementation delayed by "disorder and interruptions proper to the bureaucratic nature of the State nad Venezuelan idiosyncracy."

www.upi.com By Sam Vaknin UPI Senior Business Correspondent From the Business & Economics Desk Published 2/27/2003 1:34 PM

SKOPJE, Macedonia, Feb. 27 (UPI) -- The "Arab Human Development Report 2002," published last June by the U.N. Development Program, was composed entirely by Arab scholars. It charts the predictably dismal landscape: one in five inhabitants survives on less than $2 a day; annual growth in income per capita over the last 20 years, at 0.5 percent, exceeded only sub-Saharan Africa's; one in six is unemployed.

The region's three "deficits", laments the report, are freedom, knowledge and labor. Arab polities and societies are autocratic and intolerant.

Illiteracy is still rampant and education poor. Women -- half the workforce -- are ill-treated and excluded. Pervasive Islamization replaced earlier militant ideologies in stifling creativity and growth.

In an article titled "Middle East Economies: A Survey of Current Problems and Issues," published in the September 1999 issue of the Middle East Review of International Affairs, Ali Abootalebi, assistant professor of political science at the University of Wisconsin, Eau Claire, concluded: "The Middle East is second only to Africa as the least developed region in the world.

"It has already lost much of its strategic importance since the Soviet Union's demise ... Most Middle Eastern states ... probably do, possess the necessary technocratic and professional personnel to run state affairs in an efficient and modern manner ... (but not) willingness or ability of the elites in charge to disengage the old coalitional interests that dominate governments in these countries."

The looming war with Iraq will change all that. This is the fervent hope of intellectuals throughout the region, even those viscerally opposed to America's high-handed hegemony. But this might well be only another false dawn in many. The inevitable massive postwar damage to the area's fragile economies will spawn added oppression rather than enhance democracy.

According to The Economist, the military build-up has already injected $2 billion into Kuwait's economy, equal to 6 percent of its gross domestic product. Prices of everything -- from real estate to cars -- are rising fast. The stock exchange index has soared by one third.

American largesse extends to Turkey -- the recipient of $5 billion in grants, $1 billion in oil and $10 billion in loan guarantees. Egypt and Jordan will reap $1 billion apiece and, possibly, subsidized Saudi oil as well. Israel will abscond with $8 billion in collateral and billions in cash.

But the party might be short-lived, especially if the war proves to be as decisive and nippy as the Americans foresee.

Stratfor, the strategic forecasting consultancy, correctly observes that the United States is likely to encourage American oil companies to boost Iraq's post-bellum production. With Venezuela back on line and global tensions eased, deteriorating crude prices might adversely affect oil-dependent countries from Iran to Algeria.

The resulting social and political unrest -- coupled with violent, though typically impotent, protests against the war, America and the political leadership -- is unlikely to convince panicky tottering regimes to offer greater political openness and participatory democracy.

War will traumatize tourism, another major regional foreign exchange earner. Egypt alone collects $4 billion a year from eager pyramid-gazers -- about one-ninth of its GDP. Add to that the effects of armed conflict on traffic in the Suez Canal, on investments and on expat remittances -- and the country could well become the war's greatest victim.

In a recent economic conference of the Arab League, Egyptian Minister of State for Foreign Affairs, Faiza Abu el-Naga, pegged the immediate losses to her country at $6 billion to $8 billion. More than 200,000 jobs will be lost in tourism alone.

Egypt's Information and Decision Support Center distributed a study predicting $900 million in damage to the Jordanian economy and billions more to be incurred by oil-rich Saudi Arabia.

The Arab Bank Federation foresees banking losses of up to $60 billion due to contraction in economic activity both during the war and in its aftermath. This might be too pessimistic.

But even the optimists talk of $30 billion in lost revenues. The reconstruction of Iraq could revitalize the banking sector -- but U.S. and European banks will probably monopolize the lucrative opportunity.

War is likely to have a stultifying effect on the investment climate.

Saudi Arabia and Egypt each attract around $1 billion a year in foreign direct investment -- double Iran's rising rate. But global FDI halved in the last two years. This year, flows will revert to 1998 levels. This implosion is likely to affect even increasingly attractive or resurgent destinations such as Israel, Turkey, Iraq and Iran.

Foreign investors will be deterred not only by the fighting but also by a mounting wave of virulent and increasingly violent xenophobia. Consumer boycotts are a traditional weapon in the Arab political arsenal. Coca-Cola's sales in these parched lands have plummeted by 10 percent last year. Pepsi's overseas sales flattened due to Arabs shunning its elixirs. American-franchised fast food outlets saw their business halved. McDonald's had to close some of its restaurants in Jordan.

Foreign business premises have been vandalized even in the Gulf countries. According to The Economist, "in the past year overall business at Western fast-food and drinks firms has dropped by 40 percent in Arab countries. Trade in American branded goods has shrunk by a quarter."

This is bad news. Multinationals are sizable employers. Coca-Cola alone is responsible for 220,000 jobs in the Middle East. Procter & Gamble invested $100 million in Egypt. Foreign enterprises pay well and transfer technology and management skills to their local joint venture partners.

Nor is foreign involvement confined to retail. The $35 billion Middle Eastern petrochemicals sector is reliant on the kindness of strangers: Indian, Canadian, South Korean and, lately, Chinese.

Singapore and Malaysia are eyeing the tourism industry, especially in the Gulf. Their withdrawal from the indigenous economies might prove disastrous. Nor will these battered nations be saved by geopolitical benefactors.

The economies of the Middle East are off the radar screen of the Bush administration, says Edward Gresser of the Progressive Policy Institute in a recently published report titled "Blank Spot on the Map: How Trade Policy is Working Against the War on Terror".

Egypt and most other Moslem countries are heavily dependent on textile and agricultural exports to the West. But, by 2015, they will face tough competition from nations with contractual trade advantages granted them by the United States, he says.

Still, the fault is shared by entrenched economic interest groups in the Middle East. Petrified by the daunting prospect of reforms and the ensuing competitive environment, they block free trade, liberalization and deregulation.

Consider the Persian Gulf, a corner of the world which subsists on trading with partners overseas. Not surprisingly, most of the members of the Arab Gulf Cooperation Council joined the World Trade Organization a while back. But their citizens are unlikely to enjoy the benefits at least until 2010 due to obstruction by the club's all-powerful and tentacular business families, international bankers and economists told the Times of Oman.

The rigidity and malignant self-centeredness of the political and economic elite and the confluence of oppression and profiteering are the crux of the region's problems. No external shock -- not even war in Iraq -- comes close to having the same pernicious and prolonged effects. -0- Part 1 of this analysis appeared Wednesday. Send your comments to: svaknin@upi.com.