www.azcentral.com O. Ricardo Pimentel Republic columnist Mar. 16, 2003 12:00 AM

Well, of course it's about oil. President Bush can talk all he wants about planting the seeds of democracy in Iraq that will one day bloom into flowers of freedom throughout the Middle East. He can tell us about weapons of mass destruction, dubious links to al-Qaida and what a nasty, nasty guy is Saddam Hussein. But the truth is we wouldn't be much bothering about Iraq were it not for oil and the fact that about 10 percent of the world's reserve happens to be under that country. And guess what? This concern for oil is entirely rational given our conspicuous consumption of it. In fact, Bush would be irresponsible if he wasn't concerned about regional stability in a place that supplies much of the world's go-juice. It's abundantly clear that Bush believes that Iraq is a rogue terrorist state. It's perfectly reasonable then to worry about potentially vast oil wealth funding such a nation's aims. The only valid question is why Bush does not simply own up. Well, partly it's because many anti-war critics make it so easy. They pitch the argument too simplistically, as about the United States wanting to "own" Iraqi oil. This is nonsense. Bush wants the next best thing: a friendly regime controlling the oil. What he wants is a regime not as likely to cause mischief among countries similarly attractive to us only as peddlers of the crude. There are valid geopolitical reasons to desire this. Yes, Saddam would be pleased as punch to sell us all the oil we want at a relatively low price. But even our best spinmeisters would have difficulty getting the rest of us to swallow trading with a guy they've been calling Hitler for the past 12 years or so. No matter. Bring up oil, and conservatives cry foul when, in fact, it's about the only argument for this war that makes any sense. Weapons of mass destruction? That Saddam harbors them is a foregone conclusion. But they pose an immediate threat to our national security only if we invade. Those aluminum tubes likely weren't for any nuclear weapons program, one defanged long ago in any case. Containment, you see, mostly works. Saddam's tyranny? If that were our reason, other tyrants register just as much or more on the atrocity meter. Unless oil or other strategic interests are involved, we're mostly not interested, Bosnia and Kosovo being exceptions. Different president, however, and didn't this current president pooh-pooh such nation-building? Al-Qaida? Even administration folks have trouble keeping straight faces selling this one by now. Liberian mercenary troops are allegedly invading the Ivory Coast. But we don't value cocoa, that country's major export, as much as we do oil. Well, most of us don't. And it's hard to keep track of which African country's troops have been sighted recently violating the Congo's sovereignty. Where's the outrage? Indonesia invaded East Timor in 1975. We did not erect any international military coalition to repel it. In this case, Indonesia had the oil. Hmm. When that clearly illegal coup briefly drove Hugo Chavez from office in Venezuela last year, we quickly endorsed the new government and then had to backtrack when Chavez was reinstalled. Chavez would be just another run-of-the-mill lefty to us if Venezuela wasn't swimming in oil. If Cuba had oil and we wanted some, Castro would be history. Look, I would be just as reluctant to go to war without broad international backing even if Bush, et al, were to own up to oil as the reason. Simply, clear and viable alternatives exist. But a little more honesty and much less false outrage, please. Yes, we have a bad case of the terrorist jitters, but oil is a great big reason that Saddam has the ability to rile us at all. Instead of owning up, however, the administration cops this how-dare-you-suggest-such-a-thing attitude every time the topic comes up. No one can say this next part enough. The fact that we find ourselves contemplating war, with oil as a major reason, is just the latest wake-up call that we need to wean ourselves. This is a tall order, requiring a monumental and transforming effort. And this might just be the real reason Bush doesn't own up to oil as a lubricant for this particular war. He apparently finds war easier than spearheading the changes domestically that might actually make the world a safer and better place to live.

Reach Pimentel at ricardo.pimentel@arizonarepublic.com or (602) 444-8210. His column appears Tuesdays, Thursdays and Sundays.

www.washingtonpost.com By David Von Drehle Washington Post Staff Writer Sunday, March 16, 2003; Page A13

 	Oil industry analysts say a quick and clean war would probably result in significantly lower gasoline prices at the pump. (Greg Wahl-stephens -- AP) 

The crisis in Iraq has become a sharply personal test for President Bush, placing public trust in his judgment -- perhaps a president's most important asset -- at the heart of the issue.

Friends and critics generally agree that a bad outcome could undermine trust in his leadership not only abroad but also at home, with ramifications from Capitol Hill to Wall Street to Main Street and the ballot box. If events tend to show that Bush has miscalculated, that his critics sized up the risks better than he did, it would undercut confidence in his approach to domestic issues: the lagging economy, reform of major entitlement programs, homeland security and so on.

If, on the other hand, his judgment were vindicated by success in Iraq -- a quick war, minimum loss of life, and a relatively calm aftermath -- Bush could be rewarded with a surge in confidence among investors and consumers. Oil industry analysts say a quick war with a mild aftermath would probably lead to a significant drop in oil prices, and many economists believe Wall Street would respond.

Even the best results, though, might not return Bush to the stratospheric level of support he enjoyed from Americans in the aftermath of Sept. 11, 2001. The fierce debate over Iraq has catalyzed opposition to Bush in a way that earlier events did not, which could limit the potential impact of a victory on domestic issues. Given the narrowly divided Congress, "war in Iraq is not going to make his Medicare proposal more palatable back home," said Bruce Reed, chief domestic policy adviser in the Clinton administration.

In effect, Bush has staked his judgment against the judgment of a daunting roster of world leaders. At a recent news conference, he repeatedly answered questions about world opinion by citing his personal convictions. "I make my decisions based upon the oath I took," he said. ". . . I believe Saddam Hussein is a threat. He's a threat to the American people. He's a threat to people in his neighborhood. He's also a threat to the Iraqi people."

It is unusual for a president to be so completely identified with a war, according to historian Douglas Brinkley. The Mexican-American War of 1848, he noted, was widely known as "Mr. Polk's War," because President James K. Polk essentially made it happen. "This might be called Mr. Bush's War."

He continued: "If things don't turn out right and the economy stays sour and terrorist acts are going on around the world, it gives the opposition party a lot of issues."

Worry over home-front effects of the war begins with the price of oil.

Few, if any, factors mean as much to the economy, or land so squarely on the wallets of consumers. Some critics of the war worry that Hussein could sabotage his own oil fields if faced with defeat, and attack the fields in Saudi Arabia and Kuwait. If enough damage were done to seriously disrupt Middle East oil production, the global economy would almost certainly slide into a recession, economists generally agree.

However, if the disruption were limited to Iraq, oil prices would probably drop -- something voters and investors would like to see. According to James Placke, an Iraq expert and oil analyst at Cambridge Energy Research Associates, prices are already quite high because of a recent strike in the Venezuelan oil fields and general fears about war.

"Now Venezuela is coming back," he said. "A war premium of four or five dollars is already factored in. If war goes well from the U.S. perspective, the price would drop almost immediately below $30 per barrel." The price is currently around $32 per barrel. Once the 1991 Persian Gulf War got underway, Placke said, "the price dropped $10 a barrel overnight," and Hussein's decision to torch the Kuwaiti fields "didn't really have much effect."

While the U.N. debate has frayed alliances and given Wall Street the jitters, it has actually reduced the danger of an oil crisis by delaying a war. The end of winter typically reduces global demand for oil by about 2 million barrels per day, roughly the equivalent of the entire production of Iraq. Other OPEC members have pledged to increase production if necessary to maintain a steady supply.

In the longer term, many experts expect that the cost of reconstructing Iraq, including care of refugees, troops to keep the peace and repairs to bombed infrastructure, would add scores -- even hundreds -- of billions to a federal deficit already spiraling out of control. Some administration supporters worry that Bush would turn from a relatively successful war only to find himself stymied domestically by red ink and a Democratic Party gearing up for the next election.

"We saw with his father that winning a war with Iraq doesn't necessarily mean you're out of the woods," said one Republican with close ties to the White House.

Democrat Reed agreed. "It's possible the war could strengthen his hand in his own party," he said, thus allowing Bush to pass some legislation on straight party lines. "But things will get back to normal pretty quickly. As soon as the White House gets back to a partisan agenda, the partisan divisions will reemerge."

Democrats would also be affected by the course of a war. Among the nine announced candidates for the presidential nomination are some antiwar candidates, some pro-war candidates and a few with highly nuanced positions somewhere in the middle. Events in Iraq will strengthen some and damage others; Iraq could be the issue that reinvigorates the Democratic left after a decade of Clintonian political moderation.

Bush, ultimately, has staked his political future and his legacy on Iraq; failure would probably spell the end of his project to shift the balance of power in American politics decisively rightward and establish a lasting Republican majority. At home as well as abroad, this has become a defining moment.

"They've raised expectations very high," said Walter Russell Mead of the Council on Foreign Relations. "They've answered doubts about policy with assurances that it's a short war. Usually you lower expectations. They've raised them."

www.taipeitimes.com BLOOMBERG Sunday, Mar 16, 2003,Page 10

Futures broker Lannie Cohen is betting crude oil will tumble the day any US attack on Iraq begins, because it happened that way last time.

Cohen is a technical trader, meaning he charts past price movements to assess the likely direction of the market. He and other technicians downplay analysts and economists who say the world's oil producers can't pump enough to cover shortages should war disrupt supplies from Iraq or its neighbors in the Persian Gulf, source of a quarter of the world's oil.

Speculators' short positions in crude oil on the New York Mercantile Exchange have more than doubled in the past three months, to the highest in the 20-year history of the contract, according to Commodity Futures Trading Commission data. A short position is a bet that crude oil will fall.

"We have been moving steadily up on war fears. Once we invade, look out," said Cohen, president of Capitol Commodity Services Inc in Indianapolis. "All you have to do is look at the historicals."

New York crude oil plunged 40 percent in the first two trading sessions after a US-led coalition began bombing Iraqi forces on Jan. 17, 1991. The price touched a record US$41.15 a barrel on Oct. 11, 1990, as troops massed in the Persian Gulf.

This time, preparations for war have helped oil prices gain 54 percent from a year ago. New York oil rose as high as US$39.99 last month. The US and UK have moved nearly a quarter-million troops to the region.

"We won't have a precipitous drop like we did in 1991 because inventories are so much lower now," said Andrew Lebow, an energy broker at Man Financial Inc. in New York. "Things are way too tight."

US oil inventories are 17 percent lower than they were in January 1991, and demand is 13 percent higher, according to government and industry figures. A strike that began in December in Venezuela halted most exports from the world's fifth-largest source of petroleum, accounting for some drop in stockpiles.

Commercial supplies of crude in the US last week fell to 269.8 million barrels, matching a 28-year low, according to Energy Department figures. At the outset of Desert Storm, there were 326.8 million barrels in storage.

Most of the world's oil producers are pumping at full capacity. They have just 900,000 barrels per day of spare production capacity, less than the 2.5 million barrels of Iraqi supplies that could be knocked off world markets by a war, the International Energy Agency said in a report this week.

By the time missiles starting exploding over Baghdad in 1991, oil prices had already retreated 22 percent from the record. Saudi Arabia, the world's biggest crude producer, and other OPEC members had increased output in the months after Saddam Hussein's August 1990 invasion of Kuwait provoked a UN embargo on Iraqi oil exports.

Analysts also doubt US-led forces can repeat the quick success of the Gulf War. A full-scale invasion of Iraq might take longer than the four days it took for US-led troops to push Hussein's army out of Kuwait.

"We had a tremendous dropoff in prices when success became evident" in 1991, said Marshall Steeves, an energy analyst at Refco Group Ltd. "We won't see that again."

Steeves predicts oil at US$50 a barrel if OPEC and other producers fail to cover lost Iraqi supplies.

On the first day of the war in 1991, US and European governments tapped emergency reserves. That boosted already ample global supplies, assuaging fears that refiners might have difficulty acquiring cargoes, said Michael Fitzpatrick, an energy specialist at Fimat USA Inc.

US Energy Secretary Spencer Abraham has pledged to tap reserves again to cover any significant supply disruption. The US and 25 other countries hold 4 billion barrels of emergency supplies.

Still, traders worry Hussein may destroy wells in Iraq and neighboring countries, crippling supplies for years.

www.taipeitimes.com By Edmund L. Andrews NY TIMES NEWS SERVICE Sunday, Mar 16, 2003,Page 10

INTEREST: Most analysts say the US Federal Reserve is likely to leave the lending rate unchanged on Tuesday, as geopolitical situations seem to be having little effect

For months, Federal Reserve Chairman Alan Greenspan has said that the biggest weakness in the economy was anxiety about geopolitical risks. Greenspan reads over his papers during a Oversight hearing on the Federal Deposit Insurance System on Capitol Hill, Wednesday.

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, Greenspan is coming 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 US$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 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 Greenspan nor any other top Fed official has hinted at a willingness to cut rates immediately. Indeed, 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 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 US 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, Berner said, but also from drop-off in production from Venezuela after a national strike, low inventories in the US and limited additional production in the major oil-producing countries.

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 1970s, 1980s 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 1970s has been overstated," 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 believe the Fed can cut rates without igniting inflationary fears.

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

At the same time, analysts think Greenspan has good reasons to be cautious. The biggest one is that the federal funds rate on overnight loans between banks is already at 1.25 percent, and monetary policy moves into uncharted territory if the rate drops to zero.

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