www.japantoday.com Yasushi Azuma

Despite two oil crises in the 1970s and the 1991 Persian Gulf War, Japan has still not succeeded in alleviating its heavy dependence on the Middle East for its oil imports.

Among developed nations, Japan is one of the poorest in natural resources and imports 86% of its oil from the Middle East.

Following the two oil crises, Japan began trying to change its excessive dependence on the Middle East and succeeded in bringing its dependency ratio down to the 60% level in the 1980s.

But this returned to the 80% level in the 1990s after some countries, such as China and Indonesia which used to export substantial amounts of oil to Japan, became basically oil-importing countries, according to the Ministry of Economy, Trade and Industry (METI).

Oil prices have recently remained high — over $30 a barrel — due to the strikes in Venezuela and continuing tensions over Iraq, and many people fear they will rise even further if the United States and its allies start a war on Iraq.

But how seriously this would hit the world economy remains uncertain.

Tsutomu Toichi, managing director and chief executive economist of the Institute of Energy Economics, has warned of serious consequences if the war is prolonged, and oil fields and shipments in Saudi Arabia and Kuwait are affected by it.

"In such a case, the uncertainty over future oil supplies will grow and oil prices will rise further," Toichi said, adding it is important for Japan and other developed countries to release their oil reserves quickly to stabilize the markets.

"Many Asian countries including China do not have any oil reserves for emergencies. If these countries are hit by a surge in oil prices, Japan will also be indirectly affected," he said.

In order to lower Japan's dependence on the Middle East, METI is focusing on expanding oil imports from Russia through a pipeline from eastern Siberia to Nakhodka along the Sea of Japan.

METI recently sent Iwao Okamoto, director general of the Natural Resources and Energy Agency, to Moscow to lobby Russia to adopt the plan in line with Japan's request.

But there is speculation that Moscow will decide on a project in favor of China rather than Japan.

Russia's Interfax news agency reported last Thursday that the Russian Energy Ministry has decided on a compromise plan, calling for building the China-proposed route first and then adding a branch for supply to Japan.

If Russia adopts the Chinese plan, it will be a blow to METI's strategy of diversifying Japan's oil imports, as it is believed Japan would not be able to secure enough oil supplies under the plan.

Japanese oil companies themselves, meanwhile, have also begun to move to purchase oil from areas other than the Middle East as procurement costs from the region have risen recently.

Nippon Oil Corp., for example, has bought about 12.6 million barrels from regions other than the Middle East, such as West Africa and Russia, since November, and with prices at high levels, many oil-exporting countries are itching to sell to importers, including Japan.

Nevertheless, such moves are seen as only temporary measures to cope with the current Middle East crisis, since these companies believe that conditions for exporting oil from the region will return to being advantageous again, compared with other areas, once the present crisis comes under control.

The recent surge in crude oil prices has already affected Japan, with the cost of various oil-related products, including kerosene and propane gas, moving higher, according to the Oil Information Center.

The average retail price for kerosene rose by 6 yen to 825 yen per 18-liter can as of March 3 from the previous week, while that for propane gas climbed 6 yen to 5,881 yen per 10 cubic meters as of late February from a month earlier, the center said.

The Japanese government is trying to play down fears of a possible energy shortage in the event of a war.

Takeo Hiranuma, head of METI, said last Friday at a press conference, "Securing oil imports and supplies at stable prices will be possible unless the war is prolonged."

Hiranuma said Japan has 171 days worth of oil reserves and is ready to release the supply whenever necessary in accordance with member countries of the International Energy Agency.

If the military conflict ends swiftly, Japan may not suffer much economically.

Regardless of the duration of the war, however, Japan finds it necessary to step up its efforts to diversify oil imports and those of other energy sources to reduce the risks.

March 13, 2003

www.japantoday.com

www.thestreet.com By Aaron L. Task Senior Writer 03/12/2003 06:28 PM EST

The disparity between chaotic world events and Wednesday's ultimately positive session for stocks brings about a perfect Buffalo Springfield moment: You know, "Stop, hey, what's that sound? Everyone look what's going down."

For what it's worth, what's going down are major global stock proxies (save the Nikkei 225, which enjoyed a technical bounce Wednesday). European bourses got rocked again, with London's FTSE 100 shedding 4.8%.

Great Britain, the U.S.' staunchest ally in the Iraq situation, offered some new proposals to resolve the diplomatic bottleneck in the United Nations, including a televised mea culpa by Saddam. Meanwhile, Serbia's prime minister was assassinated, there were protests against U.S. troops in Turkey, and little improvement of ongoing crises in Venezuela, the Korean peninsula and Israel. ("There's battle lines being drawn. Nobody's right if everybody's wrong.")

Despite all that, program-related buying, some shrewd technically driven short-covering and a touch of unjustified optimism sent major stock proxies modestly higher and well off their session lows Wednesday. The Dow Jones Industrial Average finished up 0.4% to 7552.07 after trading as low as 7416.64. The S&P 500 gained 0.4% to 804.19 vs. its nadir of 788.90 and the Nasdaq Composite ended up 0.6% to 1279.24 after trading as low as 1253.22 and breaching its Feb. 13 intraday low of 1262.

ExxonMobil (XOM:NYSE - news - commentary) was among the Dow's biggest restraint, falling 1.5% after J.P. Morgan downgraded several major oil producers. Royal Dutch (RD:NYSE ADR - news - commentary) fell 3.4% and the Amex Oil & Gas Index lost 2.2%.

Other individual movers included Black Box (BBOX:Nasdaq - news - commentary) , which tumbled 37% after warning its fiscal fourth-quarter results would not meet expectations.

Shares were bolstered early by false rumors of Osama bin Laden's capture and later by CNN's report that the U.S. is only one Security Council vote away from the nine needed for passage of a second resolution. U.N. support for the use of force against Iraq is considered critical for British Prime Minister Tony Blair, who is facing stiff political opposition to the alternative. Either way, the U.S. wants a vote by week's end, CNN reported.

"I didn't see anything fundamental that occurred at 2 (p.m. EST) to cause this rally," said Tim Heekin, director of trading at Thomas Weisel Partners in San Francisco. "When I see a rally in the last hour [or so] , it's often program-related."

Computer-driven buying by "passive indexers" could explain why many participants said Wednesday's session was quiet, although trading volume was up notably from recent levels. Over 1.5 billion shares traded on the Big Board and 1.2 billion in over-the-counter activity.

In addition to program buying, Heekin attributed the advance to an abatement of previously "relentless" selling pressure and some covering of positions by "smart shorts watching technicals." These included the 785-787 level on the S&P futures, which the trader said marked a 75% Fibonacci retracement of the rally off the October lows. (Pit-traded S&P 500 futures traded as low as 788.50 before settling at 805.70.)

On a similarly technical note, some bears may have been cowed by a drop in bullish sentiment in Chartcraft's Investors Intelligence survey to 39.8% from 41.6%. Although bearish sentiment also fell, to 37.5% from 38.2%, a drop below 40% bullishness has coincided with short-term reversals in the recent past, as Jim Cramer has repeatedly noted.

Also, the CBOE Market Volatility Index rose above 40 intraday -- trading as high as 41.16 before settling up 2.4% to 38.99. The VIX hit 40 before inflection points in July and October, although it ultimately moved much higher in both episodes, and the S&P 500 fell at least another 10% before reversing.

Finally, while European bourses remain mired at multiyear lows, U.S. averages remain stubbornly above their October lows, save the Dow Transports. To optimists, that's a bullish sign, or "positive divergence" in technical parlance.

Hard-core bears ("Paranoia strikes deep") say "poppycock" to all this, suggesting a retest, and breach, of the October lows is inevitable, noting market breadth favored decliners in both Big Board and over-the-counter trading. Skeptics also contend there are far too many folks trying to call a bottom for one to materialize, or for any rally to be sustained. Certainly, there's no shortage of bottom-pickers out there.

"If you can see some follow-through [to Wednesday's reversal] , we can say for the very short-term a significant low was put in," Heekin said.

Finally, as alluded to here last night and later confirmed in RealMoney.com's Columnist Conversation, Bob Brinker, of Marketimer, reported Tuesday his "long-term stock market timing model has returned to bullish territory for the first time since January 2000."

"Although additional minor stock market weakness is possible, we believe the market has reached the vicinity of a major cyclical bear market bottom," Brinker wrote in a bulletin to subscribers. He recommended a 100% fully invested position in equity portfolios, and predicted at least 25% gains for the S&P 500 and "significantly greater" gains for the Comp in the next one to three years.

Brinker is certainly a controversial figure. Having written about it at the time, I certainly recall his short-term bullish call on the Nasdaq 100 Unit Trust (QQQ:Amex - news - commentary) in October 2000, which he reiterated in January 2001. Despite the QQQ's dismal performance, Brinker hasn't rescinded that call, to date, according to longtime Brinker watchers and subscribers. The market-timer and radio personality could not be reached for comment.

Clearly Brinker isn't infallible. Then again, who is?

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to Aaron L. Task.

www.upi.com From the Business & Economics Desk Published 3/12/2003 6:00 PM

Here is a look at some of Wednesday's top business stories:

-0- Shares end up ahead of U.N debate

NEW YORK, March 12 (UPI) -- Prices on the New York Stock Exchange and Nasdaq Stock Market rallied modestly late in the trading session Wednesday, as investors hunted for bargains ahead of an expected U.N. vote on a new Iraq resolution by as early as Thursday.

The Dow Jones industrial average gained 28.01 points, or 0.37 percent, to close at 7,552.07, while the Nasdaq composite index added 7.77 points, or 0.60 percent, to close at 1,279.24.

The broader New York Stock Exchange composite index, however, dropped 12.94 points to close at 4,486.70, while the Standard & Poor's 500 gained 3.46 points to close at 804.19. The American Stock Exchange composite index dropped 7.70 points to close at 811.73, while the Wilshire 5000 Index added 20.61 points to close at 7,631.08.

Volume was 1.80 billion on the Big Board and 1.43 billion on the Nasdaq Stock Market.

Analyst attributed some upward action to investors squaring their positions ahead of Thursday's U.N. debate on the latest British/U.S. proposal regarding the Iraq situation.

In economic news, the Commerce Department reported that the U.S. trade deficit narrowed to $41.1 billion in January, which lifted the dollar slightly against other major currencies but did little to bolster equities.

U.S. Treasury prices eased. The 10-year bond dropped 1/32 to 102 13/32. Its yield, which moves in the opposite direction of its price, was flat, sticking at 3.58 percent from that yield Tuesday.

-0- U.S. airlines waive fines amid war fears

EAGAN, Minn., March 12 (UPI) -- Northwest Airlines has joined United, American, Continental, Delta, U.S. Airways and ATA in waiving penalties for passengers changing tickets in the event of war in Iraq.

Northwest said its new ticketing policy would give passengers the option to delay international travel and rebook a flight within 90 days after the start of military action without paying a $150 or $200 fee that would normally apply.

"Northwest's flexible international ticketing policy allows our customers to purchase travel at extremely attractive fares with the assurance that they can change their travel plans in the event of military action in the Middle East," said Laura Liu, vice president of international revenue management.

The fee will be waived only once and refunds will not be given if a lower fare becomes available. Customers will have to pay the difference if the rebooked fare is higher.

Northwest also will waive the $100 fee for customers making changes in tickets for domestic travel within 60 days of the start of hostilities. The tickets must be used by Dec. 15, 2003, in any case.

The world's fourth-largest airline is the seventh major U.S. carrier to announce a ticket policy change, joining United Airlines, American Airlines, Delta Airlines, Continental Airlines, U.S. Airways, KLM, Air Canada and ATA in easing penalties for ticket changes.

KLM is Northwest's international partner. ATA allows changes for a "Code Red" alert, as well.

Domestic airline passenger traffic fell 8 percent during the 1991 Gulf War and passenger loads on some international flights were down more than 40 percent.

International bookings fell more than 20 percent during the Department of Homeland Security's recent "Code Orange" terrorism alert, according to the Air Transport Association.

Customers must advise their travel agent or Northwest international reservations of a ticketing change before their scheduled flight or within 30 days of the start of military action, whichever comes first.

-0- NYMEX rises as U.S. oil supplies shrink

LOS ANGELES, March 12 (UPI) -- The stage was set for even-higher oil prices when the United States' oil supply fell at the same time crude imports fell by more than 1 million barrels per day, the U.S. Energy Information Administration said Wednesday.

The news contributed to a jump of more than $1 for April crude futures on the New York Mercantile Exchange Wednesday afternoon and an increase of more than 70 cents on London's International Petroleum Exchange.

"Crude oil imports have averaged over 8.3 million barrels per day over the last four weeks, but this is still 300,000 barrels per day less than averaged during the same four-week period last year," the EIA said. "Although the origins of weekly crude oil imports are very preliminary ... imports from Venezuela over the last two weeks appear to be much closer to pre-strike levels than earlier in the year."

The agency reported last week's total imports averaged 7.6 million barrels per day. Modern supertankers generally have a cargo capacity of nearly 2 million barrels.

Oil has been extremely volatile to the upside ever since the United States and Iraq began moving toward a military confrontation. Gasoline prices in the United States have reached virtual record levels of $1.706 per gallon, according to AAA, with California averaging a whopping $2.119.

The EIA said that U.S. gasoline stocks fell 4.1 million barrels last week and remained "below the low end of the normal range," while crude supplies in the Midwest continued to bump along at slightly above the lowest level recorded since the EIA began keeping supply records in 1989.

www.themoscowtimes.com Thursday, Mar. 13, 2003. Page 1 By Catherine Belton Staff Writer For two weeks after the Sept. 11 attacks on the United States, President Vladimir Putin went into hiding amid a tumult of questions over whether Russia would lend vital support for a U.S. war in Afghanistan. He emerged from his silence to give the green light to a U.S. move into former Soviet military bases in Central Asia, heralding a historic shift in Russian foreign policy toward cooperation with the U.S..

But now, as the divide deepens in the United Nations Security Council over whether to approve a resolution giving Saddam Hussein a deadline to disarm or face war, that carefully crafted relationship is already on the line.

Putin's Foreign Minister Igor Ivanov has swatted aside U.S. warnings that Russia risked ruining improving relations and endangering American moves to help Russia enter the World Trade Organization. He said flatly on Monday that Russia would vote no.

But Putin has kept quiet. In a sign he has not made a final decision yet on how to play the standoff, he has made no public statements on Russia's position since his Kremlin meeting two weeks ago with antiwar ally German Chancellor Gerhard SchrÚder, when true to form, he played to both sides.

A vote on a new UN Security Council resolution, which the United States insists will come this week, could be one of Putin's biggest tests. The question on everyone's lips is how far he is willing to stick his neck out in opposing a U.S. war in Iraq. He has to weigh a delicate balance in a tough global game of brinkmanship between defending Russia's interests in trying to avoid war and its interests in strengthening Russia's new relationship with the United States, a relationship that already is beginning to pay economic dividends as investors begin to pile back into Russian markets. Russia's stock market has soared 110 percent since late September 2001.

On the one hand, there's the tempting chance to try to dent America's growing might through a closer alliance with France and Germany, Russia's allies in opposing war. There's also the opportunity to try to hold off a war that could send oil prices plummeting, hitting budget revenues just as Putin prepares for presidential elections in 2004, and a war that could spark instability in a region much closer to Russia than to the United States. "Putin right now is doing everything sensibly possible to hold off a war in Iraq," said Sergei Markov, a Kremlin-connected political analyst.

But, on the other hand, if that big risk poker game move backfires, Russia, just four years out of economic crisis, could be ostracized by the United States, which alone, analysts say, has the power to make or break Russia's bid to integrate into the global economy.

For now, going on Ivanov's recent tough line, Russia looks to be tempted by the chance to influence global decision-making after more than a decade of being sidelined as a collapsing former superpower. Now with France and Germany joining in opposition against the United States and state coffers bulging following three years of high oil prices and in no need of handouts from the U.S., Russia is feeling brave enough to make a stand. "Who thought a month ago that Russia could escape the status of a junior partner of the U.S. Now, together with France and Germany, it is step by step pressing the U.S. into making concessions. This is a very interesting development that has not happened before," said Alexander Rahr, a specialist on Russian-German relations and the author of a book on Putin. "It's a moment of history, where Putin is saying the beginning of a multipolar world can be established."

In the face of Russian and French opposition to their resolution, Britain has proposed softening it, and the United States has indicated it might go along.

"It's not about Iraq, it's about limiting the scope of U.S. action, so that America alone cannot unilaterally decide what to do," said Rahr, an analyst at the German Council on Foreign Relations. "Putin thinks the alliance is strong enough to withstand U.S. pressure. But at the same time, he is keeping the backdoor open to jump out."

"Russia is trying to put itself in a different position in relation to the U.S. than it was under Yeltsin," said Alexei Mukhin, director of the Center for Political Information. "Now Russia is trying to regain the status of a country whose opinion has to be taken into account."

Russia's political establishment, particularly the Foreign Ministry, has long been searching for ways to combat the United States' growing strength as the only superpower. In a commentary for the Financial Times soon after the initial decision in February to side with France and Germany, Foreign Minister Igor Ivanov pointed to the new alliance as having a "significance which goes beyond the Iraqi crisis."

Even some business barons are cheering this strategy on. "This is a unique chance for Russia," said Konstantin Remchukov, chairman of the advisory board of Base Element, a metals empire owned by Oleg Deripaska. "For the first time since Putin came to power there is a possibility to split the West."

But it's not just geopolitical chess games that may lie behind the move. Analysts say France and Russia are on the offensive against the United States to press the Bush administration into making concrete concessions on their economic interests in Iraq. "The U.S. has not done enough to guarantee a new regime will pay back Iraq's debts to Russia and to guarantee Russia's stakes in Iraqi oil fields," said Vyacheslav Nikonov, the head of the Fond Politika think tank. "No deal has been struck."

Iraq owes Russia over $8 billion in debt. LUKoil had the rights, potentially worth $20 billion, to develop the vast West Qurna field in Iraq, but had them snatched away in December when Hussein's regime accused it of trying to clinch a deal with the U.S. that its

contract would be guaranteed under a new regime. Since then, however, a few medium-sized Russian oil companies have clinched deals to develop smaller fields. Russian firms also have won more than two-thirds of the contracts under the UN oil-for-food program.

For France, it's a $70 billion question. France's BNP Paribas bank has exclusive rights to handle all the funds coming out of Iraq's oil-for-food trade, said a UN diplomat, who wished to remain anonymous. That's $70 billion, and after a regime change it's unlikely France would keep hold of this account. "France has always been against regime change in Iraq because of the massive revenues BNP Paribas makes in handling Iraq's account," the diplomat said.

Those combined interests in Iraq could drive a future Franco-Russian alliance. At the start of his term in power, Putin was set on forming an alliance with the EU at the expense of the U.S. In 1999, just after he became prime minister, he laid out a proposal to move Russia's trade out of dollars into euros.

On Tuesday, EU Commissioner Roman Prodi announced plans to create a free trade area with the EU for countries stretching from Russia and Ukraine to Israel and Morocco in which all citizens could move freely. In the past, Prodi has spoken against eventual membership for Russia in the EU. On Tuesday, however, he said this could not be ruled out.

From a trade standpoint, ties with the EU are much more important for Russia because over two-thirds of trade is done with Europe. When the EU expands, that is set to grow to more than 70 percent of Russia's total trade balance.

But at the same time, building ties with the European Union at the expense of Russia's relationship with the United States could easily backfire.

"Russia has only been in three years of recovery after over 70 years of communism and 10 years of economic chaos. Russia can't afford to take big economic risks like this yet," said Christopher Weafer, chief strategist at Alfa Bank.

"France and Germany are well behind the the economic importance of the United States. Russia can't afford to risk alienating the U.S. over this."

"It will be hard to achieve increased investment flows into the economy without Russia's continued integration into the world economy," he said. "There is one country -- the U.S. -- that's in a position to make that a lot tougher. It's a fact of life today that the Europeans do not occupy the same economic space as the U.S."

Meanwhile, the European Union has been Russia's most troublesome partner so far in both political and trade issues, from last year's spat over travel to and from Kaliningrad to this year's tough new curbs on Russian grain. It also has been Russia's biggest opponent over conditions for joining the WTO.

The closer relationship with Washington, however, already has reaped dividends. The United States has been making a strong case for pushing Russia into the WTO, and its invasion of Afghanistan helped clear up Russia's own security problem with the Taliban right on its own southern borders.

"If Putin acts logically he should stick with the U.S.," Rahr said. "This what the Bush administration counted on. They didn't think there was a real threat."

Another risk is that no matter what SchrÚder or Chirac may promise Putin in return for his continued support, neither of them can guarantee the promises would be implemented. Any moves to improve ties with Russia would have to be approved unanimously by all EU member states.

"France and Germany have nothing good to offer Russia," Markov said. "From a pragmatic point of view the main problem Putin has to deal with is Russia's continued isolation. The United States is the only country that can help Putin on this."

At a round table held Wednesday to discuss Iraq, Yabloko leader Grigory Yavlinsky warned against Russia's alliance with France and Germany. "This new triangle ... is an illusion," he said, The Associated Press reported. "Putting Russia in an isolated position is going to cost much."

Dmitry Rogozin, the head of the State Duma's foreign affairs committee, however, said Russia's rejection so far of a U.S. resolution that would pave the way for war has been a matter of principle, not of alliance-building against the United States.

"We do not consider ourselves enemies of the United States. We just don't understand why the U.S. considers it necessary to wage war in Iraq," Rogozin said.

"UN weapons inspectors can keep Saddam Hussein under control. This is a unique chance to avoid war," he said. "Putin and Bush have a mutual understanding that something needs to be done on how to make sure Hussein disarms, but both have different views on how this should be achieved."

Rogozin said the United States deserved a dvoika -- one of the lowest grades in Russian school -- for its diplomacy in the UN Security Council. "Its attempts to explain the reasons for invading Iraq are laughable," he said.

He lashed out at Washington for its warnings that Russia risks damaging its political and economic interests if it votes against U.S. military action.

In an interview with The Moscow Times last week, a senior U.S. diplomat in Moscow warned that Russia risked jeopardizing U.S. support for its entry into the World Trade Organization and the lifting of Soviet-era trade sanctions under the Jackson-Vanik amendment.

U.S. Ambassador to Moscow Alexander Vershbow expanded on those threats in an interview with Izvestia published Wednesday, saying Russia also risked endangering future cooperation and investment in energy, joint work in security and anti-terrorism programs, and partnership in space, if it used its veto.

"Russia's position on Iraq cannot be connected to conditions for joining the WTO," Rogozin said. "Tying the two issues just discredits the United States. We are not America's pet rabbit that can be punished in such a manner."

Analysts said U.S. threats could only stiffen Russia's resolve. "Ivanov's latest and strongest statement [on Russia voting against the resolution] is a reaction to threats from Washington when it has been trying to convince Russia not to follow France. Instead of doing this, the United States has made matters worse," said Alexander Pikayev of the Carnegie Moscow Center.

"The Kremlin cannot show weakness ahead of elections," he said. "The Iraqi war is not popular. It would be very difficult for Russia to capitulate to such threats ahead of elections."

"This is all fairly dangerous for the development of relations between Russia and the United States," Nikonov said. "Putin has to take into account the mood of his own electorate. There is growing anti-U.S. sentiment in Russia now, and if there are worsening relations with America that could add to Putin's points.

"This won't have a big immediate impact on the Russian economy. The most important factor for the Russian economy is the oil price."

But economists argue that isolation from the United States could cost Russia its bid to diversify the economy out of its raw material base. "It's a question of whether Russia wants to catch Portugal or Venezuela," said Weafer.

With high stakes at play, Putin seems to be playing it tough for now in the hope that he will be able to avoid having to vote either way.

"The strong statements from Moscow recently are aimed at trying to pressure wavering Security Council members into not supporting the resolution," Pikayev said. If the United States does not get nine votes on the 15-member council, Russia does not have to use its veto.

"Russia's aim is not to bring the conflict to the situation where we have to vote yes or no," Rogozin said. "We need to win time. There are other methods of solving this conflict aside from war."

Deputy Foreign Minister Georgy Mamedov said Wednesday during a visit to Tokyo that Russia is hoping to avoid the use of its veto. "It would mean the collapse of diplomatic efforts and leave only military actions," Mamedov said, the Kyodo news agency reported.

As time runs out ahead of a vote, Russia may face playing a game of chicken with France and China, which have also threatened to use their vetoes against war in Iraq. "Russia does not want to be alone in using its veto. All are fearing that each side will deceive the other in this complicated game. All fear that one side will abstain instead," said Ivan Safranchuk of the Center for Defense Information.

For Putin, a tough stance from Russia is a risky play. It is unlikely Bush will step down from his threats to wage war against Iraq following the huge military build-up in the Persian Gulf. If the United Nations does not approve military action because of protests from Russia and other member states, chances are the United States will go ahead with unilateral military action anyway. It is unclear whether Russia's relations with the United States would still be undermined if this was the case. Without Russian approval of U.S. military action, U.S. officials have made it clear Russia risks being locked out of any role in a post-Hussein Iraq, including in developing oil fields.

www.forbes.com Reuters, 03.12.03, 5:37 PM ET NEW YORK, (Reuters) - Crude oil prices jumped about 3 percent on Wednesday as big drops in oil and gasoline inventories in the United States deepened fears about dwindling supplies as a U.S. war with Iraq neared. Weekly estimates of U.S. petroleum stocks and usage gave a solid edge to energy trading even as rumors and speculation continued to roil gold and other markets during the day. A showdown between the U.S. and U.N. opponents of a quick invasion to disarm Iraq looked set by Friday. But gold and Wall Street again disconnected from Iraq fears for a day as a rumor -- later denied -- swirled that al Qaeda leader Osama bin Laden had been captured. Gold fell and Wall Street stocks rallied on the rumor. At the New York Mercantile Exchange, oil markets had been nervously marking time this week ahead of what is seen as a final U.N. vote on Iraq before a U.S.-led attack to disarm and oust the government of Saddam Hussein. But oil prices suddenly took off again after the weekly U.S. petroleum data. Crude oil for April delivery closed $1.11 higher at $37.83 a barrel. The 12-year high of $39.99 traded on Feb. 27. Gasoline futures also rallied as sharp declines in U.S. gasoline stocks last week signaled demand was already rising ahead of the spring and summer driving seasons. April gasoline rose 1.52 cents at $1.1139 a gallon. The U.S. Energy Information Administration said on Wednesday that lower imports caused U.S. refiners to dip into crude oil stocks last week, pushing on-hand supplies down 3.8 million barrels to 269.8 million barrels. That matched the lowest level of U.S. crude stocks since 1975. Gasoline inventories fell 4.1 million barrels to 202 million, with refiners' production still biased toward heating oil. Gasoline imports were also low as Venezuela, a major supplier, hobbled by an oil workers' strike that began Dec. 2. Distillate stocks, which include heating oil, rose 1.8 million barrels last week. But tracking crude oil, April heating oil still closed 0.50 cent higher at $1.0352 a gallon. The United States was pressing for a Security Council vote by Friday on an amended resolution in which its chief ally, Britain, set out six tough new conditions for Baghdad to avoid war. A deadline for Iraq to comply could be moved from March 17 to March 21, diplomats said on Wednesday. U.S. President Bush has vowed to disarm Iraq, with or without U.N. support. There are about 250,000 American and British forces already massed in the Middle East Gulf region. With the U.N. vote stalled, the U.S. war on al Qaeda grabbed center stage. The bin Laden rumor fed investor hopes that the group which carried out the Sept. 11 attacks and threatened more may be running out of hiding places. Pakistani politician Agha Murtaza Pooya, deputy head of the small Awami Tehreek party, said he had told the Pashto language service of Iranian Radio that bin Laden was in custody. "I just said he's in custody. I didn't say where he was captured or what," he told Reuters. "I said he's in custody. And in custody of those that are chasing him." "This is absolutely unfounded and absolutely baseless," said Pakistan's Interior Minister Faisal Saleh Hayat of the rumor after Pooya's comments were carried by BBC radio. White House and U.S. officials also denied the report. But both the dollar and the Dow Jones industrial average rallied the bin Laden rumor triggered covering of "shorts" or positions sold earlier. A narrowing of the U.S. trade deficit added some extra incentive to take profits. "The Osama bin Laden story triggered some long liquidations" of currencies versus the dollar, said David Schoenthal, a managing director at Bear, Stearns in New York. "But the market is already so very heavy against the dollar that it is going to take something really significant to push the currencies higher against it," Schoenthal said. The buying in outside markets drained some demand for gold, which has been a safe haven for nervous investors. At the COMEX, April gold closed $4 lower at $346.60 an ounce. "The wide $342-360 range is still intact and will continue to offer plenty of trading opportunities until a decision is reached on Iraq," said James Moore at TheBullionDesk.com. At the Chicago Board of Trade, weather forecasts erased more drought fears for this year's wheat crop in the Plains and prices fell to new nine-month lows. "Forecasts for rain over the next week contributed to the decline, the rains are expected to move into some of the driest areas," said Shawn McCambridge at Prudential Securities. Wheat for May delivery closed below $3 a bushel for the first time since July 7, falling 3-3/4 cents at $2.99-1/4. May soybeans gave back Tuesday's gains, closing 6 cents lower at $5.65-1/2. May corn edged 1/2 cent higher at $2.35-1/2 as exporter bids at the Gulf of Mexico stayed strong.