www.prospect.org By John B. Judis Issue Date: 4.1.03

Much of the furious debate at the United Nations has been over whether inspectors are capable of disarming Iraq, but what really divides the United States from its chief critics on the Security Council are two diametrically opposed scenarios of a post-war Iraq. The American scenario, dubbed "new dawn," sees a transformed Iraq leading a democratic revolution in the Middle East that would sweep away monarchs and dictators, end the isolation of Ariel Sharon's Israel, boost oil production and bring in high-tech industry. The French and Russian scenario, dubbed the "gates of hell," foresees a rise in Islamic radicalism and terrorism and in global economic and military instability. No one can really know what this war would bring -- the repercussions from the Gulf War are still being felt -- but here are some reasons why, even if the United States quickly ousts Saddam Hussein, the Mideast might more closely resemble the gates of hell than the new dawn.

Democracy and modernization

The Bush administration hopes to imitate U.S. successes in establishing democracies in post-World War II Japan and Germany, but doing so in Iraq may prove far more difficult. Iraq has never experienced even a semblance of democracy. The country was knitted together by the British after World War I out of three Turkish-controlled provinces and is composed of three feuding religious-ethnic groups, the Sunnis, the Shia and the Kurds. Even though the Sunnis constitute only about a third of the population, the British, following the practice of the Turks, put this group in charge. Under Hussein they have remained so, but only by violently repressing separatist uprisings. Iraq after Saddam Hussein would be like Yugoslavia after Josip Broz Tito: It will be pulled apart by centrifugal forces. What most concerns American military strategies, for instance, is having to police a fractious post-war Iraq. Says one war college professor, "They aren't worried about fighting Iraq but about garrisoning it afterwards."

An invasion of Iraq could transform neighboring Arab countries, but not in ways that would fit the administration's specifications. After the Gulf War, Islamic radicals led upheavals in Egypt and Algeria. Currently the principal opponents of the Saudi and Kuwaiti monarchies and of the Algerian, Egyptian and Pakistani governments are pro-Palestinian, pro-al-Qaeda Islamic radicals who would turn these countries further away from the West.

Bush administration officials believe that a post-Hussein Iraq would also help modernize the Mideast, but Iraq is a poor candidate for this job. Like Saudi Arabia or Kuwait, it would depend primarily on oil revenues for its income, and like other oil-rich states, it would suffer from what economists call the "Dutch disease" -- high exchange rates from its oil exports that price other potential export industries out of the world market. Even in countries such as Nigeria and Venezuela, oil wealth has undermined rather than encouraged modernization. The key to modernizing the economy of the Mideast would be to integrate the high-tech Israeli economy into the region, as some Israeli Labor Party officials advocated in the late 1990s. But that dream is unlikely to be realized by an invasion of Iraq that is meant, in part, to buttress the pro-occupation Likud Party's rule in Israel.

A decline in terrorism?

American strategists believe that by ousting Saddam Hussein, they will intimidate would-be terrorists. That might work in the short run, especially if combined with successes against al-Qaeda and with the Sharon government's no-holds-barred military offensive in the Gaza Strip, but it's not likely to provide a lasting solution. Al-Qaeda and other Arab terrorist groups put an Islamic gloss on Arab opposition to American and British imperialism, and to Israel as a proxy for Western imperialism. An American occupation of Iraq, along with continued backing for the Sharon government, would only strengthen this opposition. The immediate reaction could be confined to raucous but terminable street demonstrations. Yet if peoples and movements feel themselves faced with superior and unyielding military force, they often turn -- as the Chechens and Palestinians already have -- to terrorism.

As the Europeans have urged, the first step toward reducing terrorism in the region is not to invade Iraq but to begin resolving the conflict between Israel and the Palestinians. After the Gulf War, the intifada continued to rage but was cut short by the first Bush administration's aggressive diplomatic initiatives, the victory in 1992 of a Labor government and the subsequent Oslo Accords. If this Bush administration were to follow up a victory in Iraq with a peace offensive in Israel, it could, perhaps, begin removing a critical source of terrorism and unrest. With the pro-Likud Elliot Abrams now firmly in charge of policy toward Israel, however, the Bush administration is unlikely to pressure Israel to withdraw from the occupied West Bank and Gaza Strip.

The region's peoples also have long memories. The Israelis keep believing that they have subdued Palestinian militancy only to find it returning stronger than ever. The first intifada took place five years after the Israeli invasion of Lebanon drove Yasir Arafat to Tunisia. In Iran, the United States helped engineer a coup against Prime Minister Mohammad Mossadeq in 1953, restoring Shah Mohammed Reza Pahlavi to power and helping him crush his political opposition. But the opposition finally rose up again in the late 1970s, overthrew the shah and installed a virulently anti-American regime dominated by Islamic clerics. What goes around comes around.

Of course a U.S. overthrow of Hussein wouldn't necessarily embitter the Iraqis themselves. But the specter of the United States, with Israel watching enthusiastically from the sidelines, brutally imposing its will on an Arab regime, even one unpopular with its citizens, could inspire a strong response in the Arab world that would eventually take the form of terrorism. And if an American occupation persisted in Iraq, the Iraqis, too, might turn against their would-be liberators.

A prosperous America and world?

Bush strategists promise that a successful war would free up Iraq's oil resources and reduce world oil prices, helping to revive the flagging world economy. By contrast, the French and Russians warn of Hussein burning up his oil fields to prevent an American takeover, as he did to Kuwait's oil fields during the Gulf War. That would lead to skyrocketing energy prices and an almost certain world recession. It is impossible to say whether this will occur, but what can be said is that American predictions of an Iraqi oil boom are unfounded. According to a joint study by the Baker Institute for Public Policy and the Council on Foreign Relations, it would take Iraq as long as three years and cost up to $30 billion to restore even the production levels it enjoyed on the eve of the Gulf War.

The war -- and the resulting conflict between the United States and its European allies -- could also exact other tolls on the world economy. The United States is running a huge international-payments deficit of almost $3 trillion. Over the next decade, that deficit could spiral upward due to irresponsible fiscal policy and to military expenditures -- enlarged by the costs of occupation in Iraq and by foreign adventures in places such as the Philippines. During the Vietnam War, when the United States was running similar deficits, European pressure on the dollar helped precipitate a financial crisis in the early 1970s. The same thing could occur during the coming decade.

Such a crisis would be caused primarily by American financial overreach, but just as before it could be aggravated by geopolitical conflicts -- this time emanating from the bitter UN debate over Iraq. Already European Union countries are calling for the Organization of the Petroleum Exporting Countries to denominate oil in euros rather than in dollars, and the Chinese have floated the idea of replacing the dollar with the yuan as the East Asian regional currency. These conflicts could also spur the creation of protectionist trade and currency blocs. The United States is threatening to retaliate against Germany by reducing its military expenditures there, while the EU opposition to American geopolitics probably contributed to the failure of the recent World Trade Organization meetings in Tokyo.

Economists argue that the trends toward globalization will sweep away these hostilities, but as Newsweek columnist Robert J. Samuelson recently pointed out, the opposite could happen: The conflicts themselves could threaten the global trading and financial order, as happened on the eve of World War I, when the world economy was just as integrated as it is now. Who knows: Perhaps an Iraq war would turn out to be an unfortunate but forgettable interval in world history, much like the Crimean War of the 1850s. But it could also turn out to be a watershed in international relations, one in which the United States, harboring illusions of omnipotence, undermined the international institutions created after World War II, sowed decades of discord in the strategically vital Mideast and, by fatally overreaching, set itself on a path of national decline. John B. Judis

Copyright © 2003 by The American Prospect, Inc. Preferred Citation: John B. Judis, "A Case for Hell," The American Prospect vol. 14 no. 4, April 1, 2003 .

www.leesburg2day.com Teresa Brumback

Mar 13, 2003 -- As consumers are reeling from gas prices surging to an average $1.63 a gallon on the East Coast, several big oil companies are raking in healthy profits while a possible U.S-led war on Iraq looms.

Prospects about a war in the Persian Gulf region and its spillover effect on oil supplies and prices is creating havoc in the commodities market, experts say.

The U.S. Department of Energy is forecasting retail prices to peak in April at $1.76 a gallon because of the gyrating oil markets, increases in crude oil and normal seasonal upturn in demand in gasoline markets.

Oil experts and suppliers say the prospects of war and other factors—but not supply and demand issues as many believe—has made commodities markets skittish, driving up the crude oil prices which closed at $37.78 a barrel last Friday, twice what it cost this time last year and some $12 more than it cost in November. The cost of gasoline—along with diesel, heating oil and other petroleum products—has gone up primarily because refiners are paying more for crude oil, the principal cost component of a gallon of gasoline, according to the Department of Energy’s Energy Information Administration.

The rising prices are playing havoc with commuters and businesses, but the world’s large oil companies aren’t complaining. Exxon Mobil Corp., for example, last year posted quarterly profits in excess of $20 billion. Royal Dutch Petroleum Company, parent of Shell oil saw net proceeds increase 33% to $107.66 billion last year.

But American Petroleum Institute spokesman Ronald J. Planting cautioned that profit margins are misleading because a lot of the oil giants’ profits gains are generally below last year’s levels. The API sides with DOE’s explanation for the rise in oil prices.

“The most significant factor in the rise in gas prices is the rise in prices on the crude oil market,” said DOE’s Energy Information Administration spokesman John Cogan. Those are influenced by OPEC instituted production cutbacks, uncertainty in the commodities market, and a strike on Venezuela in December.”

As of 2002, Venezuela ranked fourth in countries supplying oil to the United States and Iraq ranked seventh. Iraq accounted for 3.3 percent of the United States’ total imports of oil, according to the API. In ranking order from highest to lowest, the top 10 exporters of oil to the United States for last year were Canada, Mexico, Saudi Arabia, Venezuela, Nigeria, United Kingdom, Iraq, Norway, Angola and Algeria.

During the first seven months of 2002, the United States imported an average of 566,000 barrels per day from Iraq, the world’s second largest proven reserves of oil with 112 billion barrels. Iraq also contains 110 trillion cubic feet of natural gas.

On the worldwide market, February crude oil prices moved higher than expected pushed by fears of the war, low inventories, slow recovery in Venezuelan exports, continued cold weather and sharply higher natural gas prices in the United States, according to the EIA.

But Virginia Attorney General Jerry Kilgore is among those who are not swayed that those factors are chiefly responsible for what area oil dealers say are record prices at the pumps. In Loudoun, a random survey Monday showed that at Plaza Texaco in Leesburg, prices for a gallon of regular gas were $1.66, $1.65 at Jock’s Exxon and $1.74 at Middleburg Exxon.

As part of its consumer mission, the Attorney General’s Office will conduct an inquiry by a special task force this month into whether oil-price gouging is behind skyrocketing prices statewide.

“The task force will be talking to retailers, wholesalers, and refiners, to get to the bottom of the question,” said Kilgore’s spokesman Timothy M. Murtaugh. “Clearly, the price of a gallon of gas is rising. What we want to find out is whether it’s due strictly to market forces or whether it’s being artificially raised.”

The probe was launched following inquiries about possible gouging from gas manufacturers, he said.

William B. Holtzman, owner of Holtzman Oil Corp., an oil distributor for 31 years supplying 100 stations in Virginia, West Virginia and Maryland, said he believes, as many experts do, that the wild swings in the commodities market are to blame for the rising prices. “When you have uncertainties with Iraq, the speculators who want to make money on crude play in the commodities market. That just wreaks havoc with the prices. It’s not supply and demand. I don’t believe there’s any supply problem. The commodities market sets the price.

“It just drives us crazy,” Holtzman added of the price hikes. “Friday we have some increases by 5 cents in heating oil and gas from the suppliers.”

Prices for heating oil from Holtzman Oil have climbed from $1.39 a gallon in December to $1.42 in January, to $1.79 currently. “It’s really spiked because of the commodities market,” he said. “Everybody thought we’d be at war today. The speculators thought so, so they were probably buying it up.”

Last winter, fuel oil was unusually low at under $1 per gallon, because of an unseasonably warm winter and a glut of the product.

Crude oil could shoot up to $50 a gallon if the United States goes to war, Holtzman predicted. “It got to $40 a barrel during the energy crisis. During the Gulf War, the major companies locked their prices for seven days. I thought that was very patriotic. It kept speculators from escalating the price. They could do that now if they could control the crude,” he added.

A lot of oil companies also own the crude oil, he said. “When they go up, they also make money.”

He predicted that if the war pans out, gas prices at the pumps will drop to the $1.20 range.

But market forces are responsible, said Holtzman, not artificial inflations of prices. “When you have talk about gouging, that’s a political thing that someone wants to make hay out of,” Holtzman said.

In the Washington area, gas prices are 10 cents higher per gallon than in Clarke County and other outlaying counties to the west because of a gas tax in Loudoun County and a special metro tax applied because of vehicle-caused air pollution in the Washington area.

James L. Pumphrey, owner of Jock’s Exxon, a family-owned business in Leesburg since 1965, said prices at the pumps are the highest he’s ever seen. “The oil companies react to the way the stock market goes. The slightest word sends the future markets going one way or the other. We have to pass the costs on.”

From what he’s seen, Pumphrey said people aren’t changing their driving habits because of the gas prices. “I think people are still out there doing pretty much what they want to do. With the volume of traffic I see out there, it hasn’t.”

But Pumphrey and others worry about the effect on gas supplies and prices if Iraq’s leader Saddam Hussein sets fire to the oil fields as he did in Kuwait after the Gulf War. If that happens, Pumphrey predicted that would be followed by an initial spike in prices. “Here lately, the least little thing has caused the market to spike, even after comments that Colin Powell made to the UN,” he said of the U.S. Secretary of State.

Loudoun County Public Schools had already braced itself for the gas price hikes. “It hasn’t affected us much. When we started the year we projected more than what we needed, so we’re OK,” said school system spokesman Wayde Byard. “If it shoots up to over $2, we’ll have a problem.”

This year the school system budgeted an average of $1.50 a gallon for diesel and gas. “The 12 snow days helped because buses weren’t on the road,” he said.

For heating oil, the school system is projecting to spend $1.2 million, under the $1.4 million it has allocated.

Loudoun County had already prepared for a worst-case scenario with gas prices. “It’s not a killer thing for us, not like the buses are for the schools,” said County Budget Chief Ben Mays.

For FY 2003, the county budgeted $2 a gallon, but is spending $1.45 for gas and $1.54 for diesel for its 900 vehicles including deputy cruisers, vehicles for fire and rescue, building inspectors and utility, maintenance, and parks and recreation personnel.

Budget figures on total expenditures for fuel were unavailable at press time.

“We are proposing the same $2 a gallon budget in FY 2004, in consideration of the fluctuating prices,” said Jay M. Snyder, director of General Services. No operations have had to be curtailed because of the price hikes, he said, adding, “We’re within the budget.”

Leesburg is also banking on prices being higher than last year. Last year the town budgeted $110,000 for diesel and gasoline, and for next year has budgeted $125,000, said Philip L. Rodenberg, deputy town manager.

"We’re spending more,” said Rodenberg, particularly with the recent snow blizzard and trucks working around the clock.

Gas and diesel are needed by the town’s police, street and utility crews.

Effects of price hikes are simmering at the state level as well. Virginia State Police are projecting to spend $2.7 million for gas, compared to last year’s expenditure of $2.5 million.

“We have not sent out any instructions to troopers on fuel savings measures,” said police spokesman Lt. Gary B. Payne. “We do constantly send out reminders to drive in a manner to save fuel.”

During previous gas crises, State Police were required to park patrol cars for 10 minutes each hour. “Our normal patrol would be to constantly patrol the interstate, monitor for traffic hazards and disabled motorists,” Payne said.

Over the past three months police have spent an extra 25 to 30 cents per gallon on gas, while using over 200,000 gallons a month, according to State Police Property and Finance Officer Douglas W. Dix. “We’re having to make up the extra money from other areas,” he said.

As oil prices are rising, supplies are down. Total world inventories by oil-exporting countries reached an estimated 2.4 million barrels at the end of February—the lowest level since March 2000, according to the Energy Information Administration.

Prices are likely to remain on the high side and subject to substantial volatility through 2003, the agency stated. The continued loss of much of Venezuela’s oil exports and the risk of increased tensions in the Middle East could cause oil prices to spike. A strike against the oil sector in Venezuela continues and the recovery in production and exports of crude and oil products has been slow.

If the oil strike is prolonged and tensions in the Middle East continue, the chance of another price spike will remain high, it added.

Experts point to historical trends for price hikes. Prices also were volatile during the Persian Gulf crisis. When the U.S.-led air war began, the United States released supplies from its strategic petroleum reserve and prices fell.

Today, the United States has 600 million barrels in storage in the reserve, equivalent to 300 days of imports from the Middle East. The United States uses 20 million barrels a day, according to Planting.

But it is unlikely the United States would have to depend heavily on its strategic petroleum reserve due to supplies worldwide including strategic stocks available in Europe and Asia, the API spokesman said.

For the week of March 3, gas prices in the United States averaged $1.69 at the pumps, compared to the average of $1.14 a gallon in 2002, according to the Energy Information Administration.

The East Coast average for the week of March 3 was $1.63, compared to $1.10 last year at this time.

Nationally, last week the lowest prices were reported at an average of $1.58 on the Gulf Coast. The highest average was at $1.93 on the West Coast.

Cogan couched predictions about future increases, pointing to a vast climate of economic and political uncertainty worldwide.

sg.biz.yahoo.com Thursday March 13, 11:17 PM

CARACAS -(Dow Jones)- Venezuela's National Assembly has authorized the cash-strapped treasury to withdraw $51 million from the Macroeconomic Stabilization Fund, or FIEM, oil windfall account, local daily El Universal reported Thursday.

The withdrawal will wipe out the federal government's balance within the FIEM, leaving the fund with $1.608 billion, of which $208 million is earmarked for state governments and the remainder for state oil company Petroleos de Venezuela SA(E.PVZ), according to the report.

The FIEM is a rainy day fund that, in 2000 and 2001, absorbed half of Venezuela's oil revenues above budgeted levels. The account isn't expected to get any deposits until 2004 as a result of a new law.

Government income was severely affected by a two-month general strike against President Hugo Chavez's leadership that began Dec. 2, which all but shut down Venezuela's vital oil industry, among many other sectors.

Opposition leaders are demanding Chavez agree to early elections, blaming his left-leaning policies for the country's deepening economic crisis.

The economy contracted 8.9% in 2002, amid 17% unemployment and 32% annualized inflation sparked by a 46% devaluation of the bolivar. The currency lost a further 25% this year before currency sales were halted Jan. 21.

Chavez has said the problems are due to an "economic coup" led by his opponents.

El Universal Website: www.eluniversal.com

-By Jehan Senaratna, Dow Jones Newswires; 58212-564-1339; jehan.senaratna@dowjones.com

www.socialfunds.com 03/13/2003: Press Release from Coalition for New Philanthropy

(CSRwire) NEW YORK, NY - The Coalition for New Philanthropy in New York, a partnership that encourages African American, Latino and Asian American donors in the New York metropolitan region, has named CAO K. O, as chairman of its Executive Committee. Mr. O is executive director of the Asian American Federation of New York (AAFNY).

The Coalition also announced that it recently received a two-year, $150,000 grant from the Carnegie Corporation of New York to support research and program evaluation. The research project focuses on the charitable interests and practices of African American, Latino and Asian American donors throughout the tri-state region, while the evaluation project tracks the effectiveness of the Coalition's activities to engage them.

"The Coalition, which has received more than $1 million in grants to date, believes that philanthropy is a vital and powerful tool for community progress, civic empowerment and social good," Mr. O said. "As more African Americans, Latinos and Asian Americans achieve financial success and accumulate more assets, the options are greater than ever for them to invest in metro New York City communities."

According to the 2000 U. S. Census, people of color now encompass more than 50 percent of New York City's population.

"While these communities already have strong traditions of charitable giving and usually give a higher percentage of their incomes than other individual givers, we have found that their giving is often personal and informal," Mr. O pointed out.

Mr. O replaces outgoing Coalition Executive Committee Chairman Enrique Ball, a native of Venezuela and the development director of the Hispanic Federation, an umbrella organization for 75 Latino social service agencies in the tri-state area. Mr. Ball will continue to serve on the Coalition's Executive Committee.      Mr. O, a native of Vietnam who has held key social service positions in the public and private sector, has been the executive director of the Asian American Federation of New York since its launch nearly 13 years ago. Under Mr. O's direction, AAFNY has grown in size, reach and influence. His accomplishments as AAFNY's leader include building substantial gains in financial and management resources, launching new programs and services as well as serving as a public policy advocate for Asian American New Yorkers.

The New York Coalition for New Philanthropy, operating from offices at 505 Eighth Ave. in New York, is composed of five collaborating organizations - The Asian American Federation of New York, the Center for the Study of Philanthropy of the Graduate School and University Center, City University of New York; the Hispanic Federation, the New York Regional Association of Grantmakers, and the Twenty-First Century Foundation. These five partners represent the main philanthropy association of the region, a leading philanthropy research center and three major ethnic funds.

Visit Corporate Social Profile for Coalition for New Philanthropy

sg.biz.yahoo.com Thursday March 13, 11:00 PM

CARACAS -(Dow Jones)- Venezuelan Trade Minister Ramon Rosales said a recently published list of "importable" items included paper only for text books and not for newspapers, which are a lower priority, local daily El Nacional reported Thursday.

Paper for newspapers may be included in future lists, and newspaper owners needing to import paper can file a request for "reconsideration," Rosales was quoted as saying.

Rosales couldn't be reached for further comment.

Newsprint isn't manufactured in Venezuela and many local newspapers have said they only have paper to last them through about April.

Opponents of President Hugo Chavez warn he'll likely use the new rules to close newspapers critical of his administration, which they say is becoming increasingly dictatorial.

Chavez often accuses some newspapers, along with television and radio stations, of unfair coverage.

As reported, Venezuela earlier this week published a list of some 6,000 items deemed essential imports by the government, which imposed foreign exchange controls last month in a bid to protect international reserves which stood at $12.4 billion on March 11, according to the central bank.

Reserves were severely affected by a two-month general strike that began Dec. 2, which all but shut down Venezuela's vital oil industry, among many other sectors.

Opposition leaders are demanding Chavez agree to early elections, blaming his left-leaning policies for the country's deepening economic crisis.

The economy contracted 8.9% in 2002, amid 17% unemployment, and 32% annualized inflation sparked by a 46% devaluation of the bolivar. The currency lost a further 25% this year before currency sales were halted Jan. 21. Meanwhile, an unofficial parallel market has developed, with the bolivar trading at between VEB2300 and VEB2800 per dollar versus VEB1598 set by the government.

Chavez has said the problems are due to an "economic coup" led by his opponents.

El Nacional Web site: www.el-nacional.com

-By Jehan Senaratna, Dow Jones Newswires; 58212 564 1339; jehan.senaratna@dowjones.com