www.dailystar.com.lb Compiled by Daily Star staff

LONDON: Sheikh Ahmed Zaki Yamani, famed as the face of Organization of the Petroleum Exporting Countries (OPEC) during the oil price shocks of the 1970s, warned Friday a war on Iraq could drive oil above $50 a barrel and wreck the world economy. “If the absence (of Iraqi crude) is long enough and it can’t really be corrected and reduced by strategic reserves, prices can go to a very horrible ceiling and the price will be above $50,” the former Saudi oil minister told journalists on the sidelines of a seminar organized by his London-based think tank, the Center for Global Energy Studies (CGES). “It will ruin the world’s economy,” he warned. US oil prices surged to nearly $40 a barrel on fear that a war could disrupt Baghdad’s 1.7 million barrels per day of exports, but have since calmed after Saudi Arabia promised to make up any shortfall. World crude prices slumped again Friday as investment hedge funds bailed out of oil in anticipation that an American war could finish quickly. US light crude shed $2.11 to $33.95 a barrel for a 10 percent fall in two days as a series of automatic sell stops were triggered on the futures market. London Brent fell $1.28 to $31.15, an eight-week low. “Last time in the 1991 Gulf War there was a big collapse when the shooting started and perhaps this time traders are getting in ahead of the game,” said Christopher Bellew of brokers Prudential-Bache International. Also dragging prices down was a Reuters report that Saudi Arabia had snapped up 14 tankers to move a massive 29.5 million barrels of crude oil to the US for May delivery. Oil traders said the chartering spree shows Riyadh will keep supplies running high into May on top of sharp increases in recent months to fill shortages from strike-hit producer Venezuela and allay supply fears ahead of a possible war. Asked how much war premium was factored into prices, Yamani said: “You can’t really quantify.” But he added there were also fundamental reasons for current price strength, such as low US oil inventories, which have fallen to a 27-year low. Yamani said prices would fall to less than $25 a barrel if any conflict were short and did not do any permanent damage to oil fields, but he doubted OPEC could make up in the short term for any outage of Iraqi supplies. “With the absence of Iraqi crude from the market for some time, I don’t think OPEC will really stand up to the present offer to make up for the difference, especially if the Venezuelan problems are not solved quickly,” Yamani said. Asked later by journalists if that meant that the International Energy Agency (IEA) would have to tap into emergency stockpiles to meet demand, he said: “I hope so, I think they have to.” Both the Paris-based IEA and Washington have indicated a preference for OPEC to meet any shortfall, although both remain ready to act swiftly should extra oil be needed. Among the worst case scenarios would be if Iraqi President Saddam Hussein set out to destroy Iraqi oil wells, something the Iraqi leader has denied he would do, though Yamani said he didn’t take Saddam’s denial very seriously. He cited research that because pressure in Iraq wells was low ú in contrast with Kuwaiti wells torched during the Gulf War ú setting fire to them could destroy them for good. Provided, however, any war ended quickly and damage to oil fields was limited, prices could slump and the producers’ cartel could lose its power. “OPEC has a lot of problems … (it) has to reduce production in order to stabilize prices. To what extent can Saudi Arabia continue to reduce production I don’t know. OPEC has problems even without a war,” Yamani said. Should foreign investment pour into Iraq, production could soar, heralding an era of far cheaper oil. “Foreign oil companies injecting billions of dollars have to have a return on their investment, Iraq will produce without restriction,” he said. ú Agencies

www.whtm.com Friday March 14, 2003 3:51pm

DJIA  38.00   NASQ  0.44   S&P  0.03%

U.S. Backed Resolution On Iraq Appears Doomed London (AP) - If U.S.-led forces invade Iraq, world oil prices will probably plunge from current levels and stay there - so long as the conflict ends quickly and causes little damage to production capacity in the Persian Gulf, several energy analysts said Friday. However, a war that spills into neighboring countries or one in which Saddam Hussein sabotages his own oil fields could panic markets and trigger a spike in prices to $50 or even $60 a barrel, some said. The wide range of forecasts is a sign of the difficulty analysts face in trying to envision how markets will react to a war of unpredictable severity. Fighting might be over in a few days, or it might erupt into a regional conflagration that affects crude exports from Kuwait and even Saudi Arabia. How OPEC and oil-importing countries respond to a war will also have a great influence on prices. Perhaps the only certainty is that markets will welcome any move that keeps supplies flowing. Crude prices fell Friday on reports that Saudi Arabia's state-run oil company Saudi Aramco had chartered supertankers to carry an exceptionally large shipment of crude - 28 million barrels - to the United States for delivery in May. April contracts of U.S. light, sweet crude tumbled by more than $2 a barrel in New York before rebounding somewhat to $34.90, down $1.11 from Thursday's close. In London, North Sea Brent crude futures were trading 98 cents lower at $31.45. Analysts say that fears of a wartime disruption in supply have swollen crude prices by at least $5 a barrel. This so-called war premium has increased along with tensions in the Persian Gulf because markets worry that hostilities with Iraq will paralyze that country's 2 million barrels in daily oil shipments. Although prices might rise in the last hours before any actual outbreak of hostilities, several analysts predicted that an attack on Iraq would knock the floor out from beneath the market - just as it did when coalition forces launched Operation Desert Storm on Jan. 16, 1991. Futures contracts of U.S. light, sweet crude plummeted by $10.90 a barrel on Jan. 17, 1991 to close in New York at $21.30. "History would suggest that oil prices would go down fairly rapidly, maybe $5-7 a barrel, probably within one day," said Angus McPhail, an analyst at ING Financial Markets in Edinburgh, Scotland. He believes that markets will be awash in crude after a swift war, particularly if Venezuela continues to recover from an oil industry strike and other members of the Organization of Petroleum Exporting Countries keep busting their output quotas. For the second half of the year, ING Financial Markets foresees an average Brent crude price of $18.50 a barrel. "We are adamant that oil prices will fall," McPhail said. Matthew Cordaro, an energy specialist at Long Island University, in Brookville, N.Y., argued that U.S. crude prices would fall to $25-28 a barrel "within a couple of days" of the start of a war. Prices might fall by an additional $2 a barrel beyond that, Cordaro said, if President Bush authorizes a release of crude from the U.S. Strategic Petroleum Reserve, or SPR. U.S. Energy Secretary Spencer Abraham has repeatedly emphasized that the United States will tap into its 600 million barrels of strategic reserves only if it sees a serious disruption in crude supplies. A short war that didn't impair Iraq's ability to soon resume exporting oil would probably not warrant a release of SPR oil, Cordaro said. The first line of defense for importing countries in the event of a war would be an increase in OPEC oil production. OPEC this week estimated its spare production capacity at 2-4 million barrels a day, but the International Energy Agency said that OPEC might not be able to raise output quickly by more than 1 million barrels. The agency is the energy watchdog for major consuming countries. Adam Sieminski, an oil price strategist at Deutsche Bank in London, argued that the Bush administration would most likely tap into U.S. strategic reserves in a war. If not, he said, "Bush will win the war but lose the 2004 election." With no SPR oil, Sieminski said it was impossible to predict how high prices could go. "Who knows? It's going to be much higher than it is now, with consequent damage to the world economy," he said. In a worst-case scenario, a wider war could inflame regional hostility to the United States and lead to another Arab oil embargo. Prices might then spike to as much as $60 a barrel, said Rob Laughlin, managing director of London brokerage GNI Man Financial. Former Saudi Arabian oil minister Sheikh Zaki Yamani agreed, telling an industry conference Friday that prices could exceed $50 a barrel if supplies from neighboring countries such as Kuwait and Saudi Arabia were interrupted. However, Yamani said that a short and successful war against Iraq could push prices to under $25 a barrel.

www.iribnews.com 3/15/2003 8:16:17 AM

Tehran, March 15 - Recent memories in oil markets delineates the fact that crude prices have flactuated by causes other than genuine changes in supply and demand. When the Islamic Republic, for instance, gained triumph in Iran and followed by the flare-up of an 8-year war imposed on Iran the oil prices were pushed up to 38 dollar per barrel in the year 1982. In the year 1992, oil leapt towards hikes of 40 dollars pb from an original 15 dollars after US launched assault on the oil giant Iraq. But heavy slumps at that time followed the jumps after such temporary shocks eased pressure, bringing sharp declines in revenues of oil producing countries which themselves sparked serious economic crises in those states. Mulling the facts on the ground, the giant oil producer organisation, OPEC, would take excessive care in its crude policy with a downbeat look on the market. The approach makes sense for a raft of reasons. OPEC eased taps for an additional 3.5 million barrels in supply during the recent months to see a balanced world market. Not taking the excess into account, some 3.1 million barrels of spare production go daily into market stranded. Venezuela, the third world oil supplier, has made a comeback to scales after months of tense political situation. Pundits forcast a seasonly 2 million bpd fall in demands when warm season comes. The last but not the least is that the minister in charge of the oil affairs of world's biggets consumer, the United States, has hinted lately at making use of US strategic oil reserves with an eye to conditions ongoing in the market. All in all, oil producers would feel no sagation to have any increase in supplies, if deciding to flee from effects of a future flactuated mart.

www.cnn.com Friday, March 14, 2003 Posted: 5:10 PM EST (2210 GMT)

CARACAS, Venezuela (Reuters) -- A Venezuelan union boss sought by authorities for leading a crippling strike against President Hugo Chavez was granted political asylum at the Costa Rican embassy, that nation's government said in a written statement on Friday.

Carlos Ortega, a fierce critic of Chavez who spearheaded the two-month opposition strike that tried to oust the leftist leader, went into hiding last month ago after the government arrested another strike leader.

Chavez, a former paratrooper who survived a brief coup in April last year, brands his political enemies "terrorists and coup mongers." He has threatened to arrest strike leaders who he accuses of trying to sabotage the oil industry.

Ortega is the third major foe of Chavez to seek political sanctuary overseas in the last year.

Pedro Carmona, the opposition business chief who briefly replaced Chavez as president during April's coup last year, was allowed to leave for Colombia last year. Retired naval officer Carlos Molina, who faced an investigation for his part in the coup, was later granted refuge in El Salvador.

www.nytimes.com By EDMUND L. ANDREWS

WASHINGTON, March 14 — Alan Greenspan, the Federal Reserve chairman, has said for months that the biggest weakness in the economy is anxiety about "geopolitical risks" — namely the threat of war in Iraq. Once that is "resolved," he has said, confidence should rebound and growth should resume to more normal levels.

But as the Iraq debate has dragged on longer than expected and the economic news has become worse, Mr. Greenspan has come under increased pressure to reduce interest rates when the Fed's monetary policy committee meets on Tuesday.

The drumbeat of bad news — the economy lost 308,000 jobs in February, retail sales slumped more than expected and oil prices surged to nearly $40 a barrel before easing back — has heightened fears that the economy is suffering from more than just war jitters and has increased speculation among investors that the Fed may lower interest rates.

Most analysts say the Fed is much more likely to stand firm on Tuesday. Rather, they say, the central bank is likely to warn that the risks of a slowdown have increased and that it will "closely monitor" events.

That would be a signal of its readiness to pump money into the economy quickly, without waiting until the next scheduled meeting of the Federal Open Market Committee, if a potential war with Iraq went worse than expected or if confidence failed to bounce back afterward.

"I don't think there is much chance of a rate cut next week," said Diane C. Swonk, chief economist at Bank One in Chicago. "Greenspan has been pretty clear that he thinks Iraq is the major disturbance in the economy."

Thus far, neither Mr. Greenspan nor any other top Fed official has hinted at a willingness to cut rates immediately. Indeed, Mr. Greenspan went so far as to say at a Congressional hearing last month that he saw no need for stimulating the economy through special tax cuts like those proposed by President Bush.

But if Mr. Greenspan does not push for lower interest rates on Tuesday, economists say, it will probably not be long before he does, perhaps before the next policy-setting meeting in May.

"If it were not for the background of war uncertainty, the fundamental data would be pointing unambiguously to an aggressive move," said Robert V. DiClemente, chief United States economist at Salomon Smith Barney, who is among economists who have become noticeably more pessimistic in the last few weeks.

"All of us have edged our numbers down," he added.

Richard B. Berner, an economist at Morgan Stanley, said the economy was suffering from more than just the paralysis caused by war anxiety.

"The big story is the energy situation," he said. Higher oil prices stem not only from concerns about the loss of Iraqi crude oil, Mr. Berner said, but also from the dropoff in production from Venezuela after a national strike, low inventories in the United States and limited additional production in the major oil-producing countries.

Mr. Greenspan has long paid close attention to oil prices, and Fed officials are well aware that big surges in oil prices have been followed by recessions in the 1970's, 1980's and after the Persian Gulf war in 1991.

But some Fed officials have suggested that the current jump in oil prices may be less threatening than it seems. Ben S. Bernanke, a Fed governor, contended in a speech last month that previous recessions were driven less by high oil prices than by the Fed's reaction to them.

"My reading of the evidence suggests that the role the conventional wisdom has attributed to oil price increases in the stagflation of the 1970's has been overstated," Mr. Bernanke said. The real problems, he said, stemmed from deeply rooted inflationary expectations at the time and the Fed's decision to tighten monetary policy in response to the surge in oil prices.

Today, analysts say, the Fed has much more latitude — and the markets know it. Inflation expectations are so low right now, sometimes bordering on worries about deflation, that most economists say the Federal Reserve can cut rates without igniting inflationary fears.

"They have a lot of running room," Mr. DiClemente said.

At the same time, analysts say that Mr. Greenspan has good reason to be cautious. The biggest reason is that the federal funds rate on overnight loans between banks is already at 1.25 percent, and monetary policy would move into uncharted territory when the rate dropped to zero.

If the Fed were to lower rates next week, it would have less ammunition to stimulate the economy if a potential war with Iraq turned out to be more costly and protracted than expected. Mr. Greenspan has said the Fed can stimulate the economy even if overnight interest rates drop to zero, by buying Treasury securities. But the Fed has almost no experience with that approach.