www.centredaily.com Posted on Fri, Feb. 28, 2003 ALEXANDRA OLSON Associated Press

CARACAS, Venezuela - The government has identified suspects in this week's bombings that damaged Colombian and Spanish diplomatic missions, President Hugo Chavez said Friday.

"We have them fingered. Let them rear their heads and they'll see," Chavez told the state television station, Venezolana de Television, during a visit to an electricity plant in southeastern Venezuela. He did not elaborate.

It was the president's first comments on the blasts, which occurred minutes apart Tuesday at the Spanish embassy and the Colombian consulate in Caracas.

The explosions slightly injured four people and damaged nearby buildings. Spain, Colombia, the United States and other nations demanded a swift investigation and warned Venezuela's protracted political crisis may have entered a new, more violent phase.

The U.S. Embassy reopened Friday after closing the previous day, citing "credible information of a threat to its security." The government sent more than a dozen federal agents, national guardsmen and municipal police to the mission after U.S. Ambassador Charles Shapiro requested increased security.

The bombings came a day after Chavez lashed out at Colombia and Spain for allegedly interfering in Venezuela's domestic affairs. Colombia and Spain had expressed concern over the arrest of Carlos Fernandez, head of Venezuela's largest business chamber. He faces rebellion and other charges for leading a 63-day general strike.

Leaflets supporting Chavez were found near both blasts, prompting opposition leaders to accuse the government.

Vice President Jose Vicente Rangel suggested radical Chavez opponents trying to destabilize the country may have been responsible.

Federal investigators have not said what type of explosives were used.

The blasts came as Venezuela is trying to recover from an unsuccessful two-month strike to force early elections. The strike cost Venezuela $6 billion, according to government estimates, hobbled what was once the world's fifth largest exporter and plunged the economy deeper into recession.

Venezuela's opposition - an assortment of business leaders, labor unions and conservative and leftist political parties - accuses Chavez of sowing class hatred and driving away investment with antibusiness policies.

Chavez counters that his foes belong to an economic elite intent on overthrowing a democratically elected president and thwarting his efforts to spread Venezuela's oil wealth to the poor.

Negotiations between the government and opposition resumed Friday after a 10-day lull but made no significant advances, said mediator Cesar Gaviria, the secretary-general of the Organization of American States. Gaviria said tensions over the bombings and Fernandez's arrest cast a shadow over the talks.

"We've had a difficult week," Gaviria said. "We haven't been able to advance to a better climate that would allow an electoral, peaceful, constitutional and democratic solution."

www.aberdeennews.com Posted on Fri, Feb. 28, 2003 Associated Press

WASHINGTON - President Bush announced Friday that Roland Bullen is his choice to be the next U.S. ambassador to Guyana.

Bullen is deputy executive director of the State Department's Bureau of Western Hemisphere Affairs. Previously, he served as deputy chief of mission in Bridgetown, Barbados, and served in U.S. embassies in Colombia, the Dominican Republic, Belize, Costa Rica and Venezuela.

His new position must be confirmed by the Senate.

www.brazzil.com March 2003

Health and education, the PT's highest priorities, even Lula's prized "Hunger Zero" program, have had to bite the bullet so that 'global' finance may rest assured. How to jump-start job creation with banks refusing to take even the slightest risk has become a mystery to all who still believe in the "bigger plan".

Norman Madarasz

In the pre-election debates, the candidate aimed for clarity. Via spin-doctor genial, Duda Mendonça, Lula da Silva painstakingly briefed Brazilian voters on the restrictions and realities facing the country. The political and economic platform of the party he was leading, the Brazilian Workers Party (PT), would have to be considerably different from what any of its staff had upheld years earlier. As a whole the party could no longer live in the comfort of opposition politics and utopian daring. The only problem was that few voters believed any of it.

Conservatives and liberals, rekindling Lula da Silva's rabble-rousing days as a post-Trotskyst trade union leader, jittered at the thought of what the party would usher in upon taking office. Their economic wing, the Brazilian banking sector, made a fortune in 2002 by speculating on their fears. While Brazil's economy grew by a weak 1.52 percent in 2002, and the non-financial sector (industry, trade and services) expanded by 5.6 percent, Brazilian banks on average leaped by a walloping 24.5 percent, according to Austin Asis consulting.

These results may be "a demonstration of competence", as the president of the Brazilian Federation of Banks, Gabriel Jorge Ferreira, hastened to add. It is still remarkable for this historical record to have occurred in a fiercely speculative year, hedged as it was on the outcome of the fall election. Banks may have upped the ante for the PT, which did not exclude many from remaining unimpressed by Lula's past. The peculiarities of their profession had long ago taught bankers to expect a quick about-face once Lula confronted economic reality. It's a kind of impassive wisdom reserved for the powerful.

As for progressive voters, they listened uneasily at the alliances anticipated in the speeches of Lula and his chief economic advisor Guido Mantega, now Minister of Planning. It was logical enough that criticism launched at the economic policies of the previous government triggered their attention. After all, neither former Finance Minister, Pedro Malan, nor President Fernando Henrique Cardoso himself had hidden their espousal of the Washington Consensus doctrine of neo-liberalism. Were there one variable left uncontrollably floating in that model, it was risk. And the perceived risk of Lula as president stirring around the WC theorems was enough to bring the country to the brink of disaster.

When Lula opted for conciliation, progressives often shrugged it off as a sundry measure required to gain power. Radical perception had it that the gentle harmonies of uniform understanding could not partake of policy without damaging the party's commitment to social reform. Yet for those who most believe in salvation—Brazil's 130 million poor—the harsh realities of market risk and lines of credit may be yielding to an ever-receding horizon of hope.

Progressive Tensions

Brazil's new President, Lula da Silva, is the embodiment of a radical's evolution into the high priestdom of peace-and-love Zen politics. To claim that most of Brazil's disenfranchised love him as their wonder-child is all but an overstatement. Born into the impoverished Northeast, Lula's childhood now reads as a mythic continental American dream. Like countless others, his parents left the agrarian region in the 1940s, heading south to the more prosperous havens of industrial São Paulo. From his early adult years, Lula filled the assembly line ranks that drove the booming Brazilian automobile industry.

During the middle period of the military dictatorship that occupied Brazil from 1964 to 1985, Lula turned to politics, and eventually co-founded the Workers Party. This was the time of Solidarinosc in Poland and a democratic surge within leftwing political movements worldwide. Lula's popularity as a trade union leader reached such heights that, when the military finally stepped aside, he decided to run in the first democratic elections held in the country for over a generation. He has done so in every election since.

While campaigning, Lula spoke stoically and serenely of the risks the country faces. With its debt to GDP ratio at over 60 percent, his government would first have to concentrate on bolstering the country's economy. For an emerging market, this primarily means reassuring the market and its players. Despite slashing Brazil's risk rating as against American Treasury C-Bonds to its lowest level since late spring 2002 (at 1,211), electoral victory has only intensified Lula's concern.

As his economic staff moves ever closer to matching market challenges, Lula tries to stall a slow slide from wonder-child to orphan. Battling between the hopes and fears of his people, his aim is to humanize an emerging market. In less specious times, such an attitude faces a wall of suspicion. But Lula the progressive has thus far stood out by gaining international backing for his vision. At least he has so far. Managing this tension is also how Lula's Brazil has come to exemplify the wedge driven between 21st century progressivism and 20th century emerging market vulnerabilities. Whatever it is that Brazilians now want, these two variables have been set upon an unstable common journey.

So it was of the highest importance that the ministerial meeting held on Monday, February 10th, be touted as a defining moment for the government. Lula's change of course from the programs and policies of his predecessor, the social democrat Cardoso (1994-2002), would finally be set. For eight years, the distinguished sociologist stood over his triumph, a new currency, the "Real". In the early 1990s, inflation spiraled until ebbing at 50 percent per month, a crisis that would soon precipitate the subsequent lesson in corruption of the (Fernando) Collor Plan. Cardoso's economic decision brought that disaster to a smooth landing, and the country to a long sought stability.

The fixed exchange rate device of pegging the real to the American dollar considerably increased the purchasing power of a large segment of Brazilians. It also allowed industrialists to import expensive foreign technology to upgrade their own sectors. Although the strong currency chipped away at exports, imported technology would prompt an import substitution market. Despite the consumer confidence of those years, failing investor confidence abetted by the Asian economic crisis of 1997 began to take a toll on the currency and stock market even within Cardoso's first mandate.

When the Asian crisis gave way to Russia's defaulting on the ruble, "hot" short term capital steam-rushed out of the Brazilian economy. The real could no longer be sustained at its pegged standard. The currency was made to float and began its grueling slide, wiping away the gains achieved in Cardoso's first term. Advocates of globalization who had been claiming an increase in world prosperity suddenly were beating hollow well beyond the many contradictions of their capitalist utopia.

In the other corner, anti-globalization activists absurdly yearned for the complete collapse of the Brazilian economy, claiming it would spread to envelop the global market and thereby sound capitalism's death knell. Realistically, the human toll of such a collapse would be far greater than any constructive energy rising from the ashes. What such opinions did bring to bear, rationally speaking, was that here lay an economic belief system—an ideology—whose reality was ultimately to produce poverty. In countless campaign speeches, Lula's team and party gestured that they would have nothing of it.

Circulation and Repetition

Weekend papers announced high expectations for the February 10th meeting. From it came only silence, offset only by the embarrassment of a secret tape recording. Late that evening the major news source announced more belt-tightening, this time to the tune of R$14.1 billion (US$ 3.5 billion). This was a measure leading beyond appearances directly to austerity. Appearing on the evening news, the President morosely left the Planalto palace where the meeting had just been adjourned. He approached admirers outside, as he has every day since inauguration. "We have to make sure the situation is secure before undertaking the greater plan", he assured the faithful.

Politics can often be an art of self-deception. Its communication channels divert honest messages into patterns of disenchantment forever projecting others as more privileged, as dominant. That the latter exist is trivial. But who their patrons are becomes the challenge to ferret out: is it the IMF, international speculators, investors, or Brazilian banks themselves?

Once a party virtually holding a monopoly on political honesty in Brazil, the PT now faces a daunting task. It seeks ever so slightly to separate itself from creditors, investors and speculators, i.e. the global finance networks determining the worth of currencies. These networks are also the ones who've most ensured the perpetuation of mass disenchantment.

In the lead up to the election, Lula could not have taken the risk of disagreeing with the terms of an IMF bailout. State coffers stood dramatically low. The real had come wildly under attack, losing 25 percent of its value in a matter of weeks. Had Lula opposed the terms and the Cardoso government led to default on its loan servicing on the eve of election time, the PT would surely have lost the presidential race, as well as its standing in the two houses of Congress. In exchange of Lula's adherence, the IMF granted Brazil a $US 30 billion bailout package, the largest the institution has ever offered.

In light of the financial turbulence, the two most awaited appointments Lula was to make were to the Finance Ministry and Central Bank. Last May, the Financial Times stepped in on behalf of market players by penning an editorial in which it beckoned Lula to name his ministers then and there. Under the pretext of clear planning, the Times smoothly slid a knife under Lula's throat. Either you name personnel we agree with and our news will help keep your economy afloat, or you sink. That was the coded message.

When the day finally came, the market couldn't have been less disappointed. At the helms of Finance is Antonio Palocci, an M.D., who headed the transition and was formerly mayor of an affluent São Paulo suburb. "For an ailing economy, I've named a physician", Lula declared in December. Yet the physician had deferred to the economist weeks earlier, when calling his soon-to-be predecessor Pedro Malan "without doubt, the most serious politician in Brazil." For all his seriousness and integrity, Malan was still Chicago's man in the tropics. Palocci seems bent on nothing else than carrying his flag.

At the Central Bank, Palocci is joined by Henrique Meirelles. His appointment signals a shift from the speculation camp to the investors' ring—assuming that they differ at all. In George Soros's ex-partner, Armínio Fraga, speculators had their man presiding over the bank during the latter part of the Cardoso years. Lula had indicated while campaigning that Fraga would have to go. Few party cadres expected a shift to the ex-president of Global Banking/Financial Services at Fleet-Boston. To get a sense of Meirelles' political weight, the size of the IMF bailout, a surprise to everyone but deciders, was given in proportion to the US$ 20 billion that the bank reportedly has invested in the country.

Meirelles' job is foremost to regain and keep investor confidence. To do so, he has convinced Palocci of the need to increase the primary fiscal surplus projection to 4.25 percent from 3.75 percent, unheard of even during the Cardoso years. To test the waters, he personally accompanied Lula to the World Economic Forum in Davos. As for what the strategy regarding Brazil's currency is, this remains unclear.

The pre-election position of Lula's chief economic advisor Mantega, was that the real should be trading at 2.5-2.75 to the dollar. This was also Fraga's position. But after 2002's record trade surplus, due largely to the weak or "more competitive" currency, economists have been quiet about a real suspended at 3.6. Were analysts of PT ardor, they would be hedging their bets that export turnover allowed by this rate will stimulate a return to 4 percent growth.

Still, the export surplus has not softened what both Palocci and Meirelles have been uttering and ushering. Apart from boosting the primary fiscal surplus, they have agreed on the urgency of curbing a stubbornly rising inflation rate by an ever-higher increase of the prime interest rate to 26.5 percent in view of curbing debt-to-GDP ratio back to 55 percent and inflation back down below 1 percent. Palocci has furthermore emphasized the need to reinforce the Fiscal Responsibility Law whereby governments of all tiers are bound by law to keeping a budget surplus, as he has the benefits of respecting all of the previous government's contracts and internal debt.

How the government intends to jump-start job creation with money costing as much to borrow, and banks refusing to take even the slightest risk with small and medium sized companies, has become a mystery to all Brazilians who still believe in the "bigger plan". Reality did strike a seeming note of understanding with the February 10th mega cut of R$ 14.1 billion as R$5.1 billion was carved straight from social spending. The stone of no ministry or secretary was left unturned. Health and education, the PT's highest priorities, even Lula's prized "Hunger Zero" program, have had to bite the bullet so that 'global' finance may rest assured.

Apart from insider scuffling, the February 10th meeting did deliver an unusual innovation. Lula has established a presidential research think tank, joining forces from a broad spectrum of Brazilian society and industry. The Council for Economic and Social Development will have no legislative mandate, though it is in charge of regularly formulating policy guidelines for the executive.

Given its voluminous size of 82 members, the PT rank and file in the lower house has grown suspicious as to its intentions. After all, a non-elected body is always grounds for concern in a democratic system when close to the presidency. Given that it is largely made up of lobby and special interest groups, it may in fact be a way for Lula to constantly keep them in check, instead of allowing them free sway to undermine his efforts at keeping partisan control of the two houses.

This possibility has not prevented many PT members of the lower house from fumigating. To counter their vocal criticism, president of the PT, José Genoíno, and PT Senate leader, Aloízio Mercadante, have chosen the dubious route of quashing the dissents as the mainstream press has eagerly been lapping up the PT style as a conflict between radicals and realists. Whatever the fairness of Genoíno's measures, radicals have seized the spotlight. Contrary to myopic mainstream misrepresentations, it could not have happened sooner.

Many are already beginning to wonder where the radical reformist dream has fled to so early in the running. Could voters really have claimed to be surprised when Palocci insisted on February 5 that "we made a program to govern, and not to win the election" or that "if the radicals thought that Lula's campaign promises were meant only to win the elections, they were fooling themselves"?

As for the President, he has been downplaying the import and weight the austere fiscal measures will have on the PT's "unwavering" social commitment. More than anyone else, he understands that the name of the game of today's economy is trust. And Lula needs the trust of the international financial community to raise Brazil to the pastures on which the Washington Consensus promised it would one day graze. Few doubt the difference in views as to what may grow on those fields.

Points of Social Attack

Lula's term began with his dedication to the Hunger-Zero program. In any nation, there are many tiers to fighting poverty. Opting for reform instead of revolution dictates a case-by-case process of praxis. Lula's commitment is eventually to increase the minimum wage, though the boost depends on how much the economy grows. And job creation is held to be stimulated by a lower prime interest rate enabled by a reformed income tax system in addition to revenues from exports.

Lula's deepest engagement, however, has been to settle the pendant weighing most heavily on Brazil's underclass. The fifth-world conditions prevailing in many areas of the country has engulfed even the most affluent State of São Paulo. Just a measure of the problem: unemployment is so chronic it fails to be measured appropriately.

Liberation theologian and distinguished social critic, Frei Betto, is Lula's chief philosophical advisor and the brainchild of the Hunger-Zero program. Despite early organizational-level criticism, Lula's ambitions go much deeper. For in this program, he is tapping into the energy of a vast area of civil society for his party's goals at sustained reform. With politicization come not only a sense and purpose, but also a commitment to secular education quite akin to Betto's philosophy.

Concerting and deliberating are part of a game to which Brazil's remarkably open media will be expected to seriously rally. This is the key ingredient to Lula's vision of education, one whose seeds are sown most thoroughly through a heightened sense of citizenship—perhaps the single most lacking factor in the national pride of Brazilians.

On the institutional level, the government has had to tackle the issue of social security. Brazil's public sector distributes a disproportionate bounty in pensions that cries out as a prime source of social inequality. Unlike a country such as France, Brazil's public sector is minute. Amounting to 11 percent of the country's pensioners, former public sector workers account for a deficit of $R 53 billion (US$ 14.8 billion) for the 2002 fiscal year. This stands in contrast to the estimated 30 percent of pension receivers from the formal private sector whose expense led last year to a deficit of $R 17 billion (US$ 4.8 billion). Left unaccounted for is the majority of Brazilians who partake of the informal private sector: street vending, undeclared services and crime.

The lion's share of these pensions goes to the military—and their offspring as well as to retirees of the federal judiciary. Pensions especially for these former public sector cadres spectacularly exceed the private sector monthly limit of R$ 1,561 (US$ 438) . Whether the PT, through their partisan alliances in the Assembly and Senate, is able to wrest these treasures from the hands of its guardians is its first great challenge. As the social security system explicit shifts collective money to a minority of the population, the government's success in curbing the pension deficit can only give more credibility to its fiscal policies, raise its social clout and establish political stability, if not in the short then at least in the long run.

Among the many ministers of note in Lula's large government is Marina da Silva at Environment. Originally from the Amazon region, Ms da Silva (no relation to the President) is a long time environmentalist. Under her jurisdiction, she will have a territory ranging over half the size of the continental USA. Its biodiversity and wealth is recognized the world over, which has at times led the USA, among others, to overlook it as sovereign Brazilian territory. The thirst of the Northern and Asian wealthy for precious wood, exotic animals and plant-derived curatives helps to maintain a criminal export trade industry, well ensconced in the massive jungle.

Famed Tropicalia singer-songwriter, Gilberto Gil, has the Culture portfolio. His role as government spokesperson to the youth cannot be underestimated. Indeed, Gil makes up for his jazzy political jibe in talking a language that all can understand. If education is a leading priority for this government, whose ministry is headed by Cristovam Buarque, this is because despite access to cable television, regular network programs approach those in the USA for debilitating intellectual content. Gil and Buarque have enormous moral responsibilities to attempt to hoist the population's general culture level to a higher sphere.

Although its first window on the world has been economic, Brazil's foreign ministry at Itamaraty palace has gathered an all-star team of intellectual diplomats under Minister Celso Amorim. Moreover, it has found a place for controversial diplomat Samuel Guimarães, whose Five Hundred Years of Periphery deserves an English translation. José Bustani, ousted from the UN agency for the prohibition of chemical weapons by the USA, also figures among its ranks. Lula's wish is to make Brazil a leader in South America. His intervention on behalf of Chavez and democracy in Venezuela has already been noted. As has his government's unbending commitment to peace in the Persian Gulf.

Lula's government has been in power for a little over 40 days. His ascension has been feted as a historical event. It holds a potential for reverting Latin American history to completing the popular reforms begun over a generation ago and brutally stunted by military coups, torture and mass murder. The continent is once again rife with violent popular uprising in Argentina, Peru, Venezuela, Colombia and now Bolivia.

As the largest country in South America, Lula's Brazil is trying to prove that there is indeed another way. This is a way that can only be achieved by splitting from a capitalist system producing ever-increasing poverty and crime and onward to one leading to greater distribution of public wealth and democratic centralism.

Canadian philosopher, Norman Madarasz, holds a Ph.D. from the Université de Paris and has extensively published think pieces and philosophical research. Currently living in Rio de Janeiro, he writes on international North-South relations and on the political economy and culture of Brazil for Brazzil, Counterpunch and other reviews. He welcomes comments at normanmadarasz2@hotmail.com

www.accessatlanta.com

By MICHAEL E. KANELL The Atlanta Journal-Constitution

The nation's economy is on the cusp once again of an energy crisis, a financial penalty that has repeatedly triggered recessions.

To be sure, the danger could dissipate within weeks, making energy instability a mere footnote to a smooth and satisfying resolution to tension in the Middle East and upheaval in Venezuela.

Or it may be that the Energy Crisis of 2003 has already begun. Certainly money has already been snatched from American pockets and shipped overseas, threatening an already fragile economic recovery.

Consumers are spending about $50 billion more in annual energy bills than a year ago, said Mark Zandi, chief economist for Economy.com. "And if we are spending more on gas and heating oil, we are spending less on everything else."

The burden is not borne equally. Costs are greater where it is coldest but also among the nation's less affluent, he said: A household below the median income spends an average of 8 percent on energy, compared with the national average of 5 percent, Zandi said.

Consumers account for two-thirds of the economy. But higher energy prices hit businesses, too, and their reluctance to spend already is the worst drag on an economy that has been struggling to recover from the 2001 recession.

Profits -- especially among transportation companies -- are increasingly squeezed by rising fuel prices. And manufacturers find it harder to sell in places like Europe, where more money must go to energy costs. Thinner margins and weaker revenue lead to cutbacks in hiring, investment and other spending.

Oil's global importance makes it all the more dangerous, argues Stephen Roach, chief economist at Morgan Stanley.

"Courtesy of a full-blown oil shock, the world is now flirting with yet another recession," Roach said.

Conventional wisdom expects -- and the Bush administration hopes for -- an Iraqi resolution that takes the air out of oil prices. But many businesses are not willing to bet on that, said Dorsey Farr, senior analyst at Balentine & Co.

"If war is prolonged, if oil prices change dramatically, you don't want to be the guy who went out on a limb and guessed wrong. It causes people to freeze, and the economy is feeling that right now."

Oil was going for $20 a barrel a year ago. This week, the price reached its highest level since the 1991 Gulf War, cresting near $40.

Pushing the price up is a cocktail of war anticipation, shortfalls in oil flowing from a politically embattled Venezuela and the unexpectedly high demand for heating oil in a surprisingly cold winter. And while the U.S. economy is not as dependent on energy as in 1973, the time of the Arab oil embargo, it remains vulnerable.

"It is already having a measurable negative impact," Zandi said. "And if we are still in the high $30s three months from now, we'll be in recession."

Predicting oil prices is a chancy game -- especially with war expected in the world's richest oil region. But a series of markers now warns of danger, just as they did in previous energy crises, according to a report by economists A.F. Alhajji of Ohio Northern University and James Williams, president of WTRG Economics.

Oil price spikes triggered or worsened downturns in 1973, 1979, 1990 and 2000.

The worst oil shocks -- 1973 and 1979 -- featured portents of trouble that are echoing now in:

• political turmoil in oil-producing countries;

• low supplies of oil in reserve;

• rising dependence on foreign oil;

• falling domestic production.

The Gulf War experience -- when prices rose rapidly only to fall nearly as fast -- shows that vulnerability does not always lead to crisis, Williams said. "But the current measures do indicate that the potential is historically high."

The potential comes not from just Iraq. Venezuelan production, undercut by near-revolution, has yet to recover to pre-crisis levels. Labor unrest has threatened Nigerian exports.

Foreign reliance higher

The United States, unlike Japan and most of Europe, has a huge oil industry. But U.S. production peaked in the 1970s after Alaska fields were tapped and has been declining since 1986.

Reliance on foreign sources reached record highs in the past two years.

At the time of the 1973 oil embargo, less than 35 percent of U.S. oil came from overseas, according to WTRG. That was nibbled down to 27 percent a dozen years later by a combination of domestic pumping and conservation.

U.S. imports now average about 8.3 million barrels per day -- roughly 60 percent of the nation's needs.

America's imported oil comes mostly from Canada, Saudi Arabia, Mexico, Venezuela, Nigeria and Iraq.

Good relations with producers don't really matter, since the oil market is what economists call "fungible." If a top U.S. supplier shuts down, oil could just be purchased elsewhere. But even the optimists think an attack on Iraq would suspend oil production, which now is more than 2 million barrels a day.

Shipments take time -- a month or more from the Middle East -- so short-term shortages are possible. And even when supplies can be shifted, a drop in supplies means higher prices.

So reliance on a small number of suppliers is worrisome. The top five account for about 76 percent of imports, up from 62 percent two years ago -- and about the same level as in 1990 when Iraq invaded Kuwait. During the 1979 crisis, five suppliers accounted for 53 percent, Williams said.

Counter to some public stereotypes, the Organization of Petroleum Exporting Countries has been quietly moving to expand production in the event of a war that even temporarily halts shipments of Iraqi crude.

Saudi Arabia, the main source of expanded production, can add more than 500,000 barrels a day, but turning on that spigot takes two to three months.

That mesh of factors has experts concerned.

"U.S. vulnerability to supply disruption has increased to historic levels recently," Williams said. "The U.S. is in no better shape to handle a supply interruption than it was at the time of the 1973 oil embargo, the Iranian revolution or the Iran-Iraq War."

Reserve levels low

Without oil, the nation's economic gears would grind to a stop.

Adding to the danger is the level of oil reserves held by U.S. companies: those stocks are at or near all-time lows. But while some critics charge that supplies are being manipulated to keep prices inflated, the dry tanks may be just a matter of good business. Despite the rising payments at the pump, many in the industry expect the world price of oil to drop soon after a U.S. attack on Iraq.

"And if you think prices are going to go down, you don't want to get stuck with high-priced inventory," Williams said.

Concerns about shortages were behind creation of the government's Strategic Petroleum Reserve. Right now, the reserve has about 600 million barrels of oil -- enough to replace about two months of imports. Meanwhile, commerical reserves have slipped to near-record lows.

Energy Secretary Spencer Abraham told Congress on Tuesday that the administration would tap the reserve if war threatens supplies.

But what if there is oil to be had, only at premium prices?

The 1973 oil embargo and 1979 Iranian revolution each more than doubled oil prices and helped trigger recessions in the United States. The Iraqi invasion of Kuwait in 1990 and the cutback on supply that tripled oil prices in 2000 both helped nudge the U.S. economy off the track.

Oil price shocks and price manipulation by OPEC from 1979 to 1991 cost the U.S. economy about $4 trillion, almost as much as we spent on the military, according to the Department of Energy's Office of Transportation Technologies.

Gulf War example

Arguments about war aside, the conventional wisdom is that a U.S. attack on Iraq will not trigger a global oil shortgage.

Rajeev Dhawan, director of the forecasting center at Georgia State, is among those who cite the Gulf War as precedent. Oil prices were already high, thanks to the Iraqi invasion of Kuwait. Outbreak of war sent prices shooting skyward to be followed quickly by the reverse as U.S. forces prevailed.

Each additional $1 per barrel translates to about 2.5 cents per gallon at the pump, economists say. Oil at $60 a barrel for any extended time could, therefore, mean gasoline selling for roughly 60 cents more per gallon than today.

The national average for regular gasoline is now about $1.66 per gallon, up from $1.13 a gallon a year ago, according to AAA.

While price boosts have been accompanied by allegations of gouging, most industry experts say price manipulation at the pump is limited. An Energy Department study in January showed a long-term match between global oil prices and what is -- eventually -- passed along to consumers. There is sometimes a lag, but the changes get to the pump within a few weeks, one way or another, the DOE found.

The consensus forecasts a repeat of the Gulf War pattern. Wall Street futures markets put the price of oil at about $25 per barrel by year's end.

So don't expect $2-a-gallon gas in Atlanta, Dhawan said. "I assume that it will be $60 a barrel for exactly 15 minutes."

War aside, current prices will likely continue for about three months, Dhawan said.

That will be a burden to the economy but no cause for renewed recession, he argued: Higher gas prices are more fodder for complaints than fatal to recovery, he said. "When the price of gas is $1.50, $2, $2.50 per gallon, we can all afford it, but we like to ... moan about it."

And thus far, the economy has only been "marginally" wounded by higher energy costs, said Richard DeKaser, chief economist for First National Corp.

Oil's economic value was greater in past downturns, he argued.

"If you look at real dollars, you cannot compare today's prices -- even at $36 a barrel -- to $40 in 1990 or even the mid-$30s in the 1970s," he said.

"Oil prices at this level are just nowhere near as harmful."

Proof of that is having oil prices up 87 percent in a year and the economy still expanding -- albeit slowly and somewhat sporadically. Producing each dollar of gross domestic product takes about half the amount of energy that was needed three decades ago.

But higher oil prices are still a tax that hits virtually the entire economy and transfers American wealth abroad, said Zandi of Economy.com. "There is probably nothing more pernicious to our economy than an increase in energy prices."

www.voanews.com VOA News 28 Feb 2003, 23:11 UTC

World oil prices eased a bit Friday after jumping to 12-year highs of almost $40 a barrel Thursday amid worries over a possible U.S.-led war with Iraq.

U.S. light crude oil dropped to about $37 a barrel while Benchmark Brent eased to about $33.

The easing came despite market skepticism over a statement by the Organization of Petroleum Exporting Countries (OPEC) that it has enough excess supply - up to four million extra barrels a day - to cover demand in the event of war.

A petroleum expert in Vienna says if Iraq were to sabotage oil fields in Kuwait or Saudi Arabia, the extra four million barrels a day may not be enough.

And analysts for J.P. Morgan, Paul Horsnell, and other firms said they doubt Opec's has four million barrels a day in excess capacity, saying the figure is more likely just a bit over two million barrels a day.

OPEC's secretary-general says the cartel does not plan to raise production quotas for the second quarter of 2003 unless there is a war. OPEC ministers are planning to meet on March 11th at a regular session in Vienna.

Prices have also been under pressure from increased demand in the United States and shortages from a recent strike in Venezuela. Venezuela says its oil production has now reached two million barrels per day, and expects it will reach its normal output of three million barrels per day in one month.