www.businessweek.com MARCH 24, 2003

For months, economists, policymakers, and investors have been pinning their hopes on the belief that war is the biggest impediment to the economy's recovery. The general view: Once the uncertainties surrounding the runup to war are past, a quick victory in Iraq will bring a surge in demand that will boost output, business investment, and stock prices in a reprise of the aftermath of the 1991 Gulf War.

They don't believe that anymore. Hopes for a post-Iraq rebound are fading fast, and so are forecasts that the second half of 2003 will bring a jump in jobs, orders, and profits. "I retain that hope, but not the expectation," says Michael J. Birck, CEO of Chicago-based telecommunications-equipment supplier Tellabs (TLABS ). Indeed, from high tech and retailing to financial services and autos, executives are throwing in the towel on the second half.

Why the new doubts? As anxiety over the wait for war climbs with every delay, the looming confrontation with Iraq is combining with a myriad of economic disappointments to dampen prospects. For starters, the Administration's tax plan is losing momentum. With the White House economic team struggling to sell it in the face of criticism of the big deficits it would produce, whatever stimulus plan is eventually passed will likely be far smaller than what the President originally proposed. Oil prices have also been driven up by a risky combination of war jitters and low inventories caused by production disruptions in Venezuela. The sky-high prices are already hurting the economy and look increasingly likely to dampen growth at least through the summer.

It gets worse. On Mar. 7, the monthly employment report released by the Labor Dept. showed businesses cutting a stunning 308,000 jobs in February. Even officials at the Federal Reserve were surprised by the size of the layoffs. The huge dropoff could not be explained by cold weather and the call-up of military reservists. Fed Chairman Alan Greenspan is still betting that "geopolitical uncertainties" are holding back demand. But other Fed officials are now fretting that businesses are just using the war as an excuse for inaction and that the economy is still struggling with excesses of the 1990s boom. Fed-watchers now believe that at a scheduled Mar. 18 meeting, policymakers will at a minimum shift their official view of the outlook to reflect the greater weakness in the economy. That's often a precursor to a rate cut, and some economists think the Fed could even cut rates at the meeting.

While lower rates would normally help the economy, many economists are nonetheless revising down their forecasts. The Mar. 10 Blue Chip Economic Indicators shows a consensus of economists expect the economy will grow 2.6% for 2003, down from the 2.8% expected as recently as January. Wall Street, too, is ratcheting down expectations. Since January, analyst estimates for third-quarter profits growth have been cut by two percentage points for companies in the Standard & Poor's 500-stock Index, according to Thomson First Call.

The new list of worries joins a host of structural economic woes. "If you woke up tomorrow and found Saddam was gone, you might get a huge relief rally," says Ed McKelvey, senior economist at Goldman, Sachs & Co. "But then after the visceral response, you would still be back facing the same problems."

McKelvey and others point to daunting problems of overcapacity, rising consumer and business debt, as well as the expectation that there's little further lift ahead from housing. In addition, the lack of pricing power, increased foreign competition, and refunding of pension plans at the expense of earnings still hang over the business sector.

That's not to say that the war isn't a huge factor holding down the economy. The endless talk of conflict has already done much damage. The Administration may have goofed when it began beating the drums last fall. Front-page headlines and Sunday talk shows made war seem imminent and increased uncertainty.

But seven months have passed, and the prolonged wait has given executives a reason not to tackle long-standing problems or to commit to new projects. With drags like excess capacity and weak foreign demand still hanging over the economy, any postwar rally in the stock market and consumer demand could soon peter out.

Patrick J. Moore, head of corrugated boxmaker Smurfit-Stone Container Corp. (SSCC ), is one CEO who thinks the effect of anxiety on the economy is overblown and that other factors will keep second-half growth low. He points to foreign competition as the primary obstacle for U.S. manufacturers. Because of the dollar's 41% rise against a trade-weighted basket of currencies from 1995 to early 2002, he says they simply cannot match foreign prices. So they're relocating overseas. Even a short war won't stop that migration, Moore says.

Overcapacity is another long-term drag that will still be around even if Saddam isn't. The industrial sector is using only 75% of its available capacity, and some sectors, like telecom, will be dealing with excess for years. John W. Rowe, CEO of electric company Exelon Corp. (EXC ), thinks the consolidation process is only halfway done: "It's a classic case of what you have to do to work off the after-effects of a bubble."

The excesses aren't just about building and equipment. With no signs of an uptick in the markets, Wall Street is planning more layoffs this year. At its peak in 2000, the securities industry employed 783,000 people; by the end of 2002, the head count was down to 708,000. Compensation consultant Alan Johnson of Johnson Associates expects payrolls to be slashed 10% more this year, with major firms starting to lay off people in May and June.

Rising unemployment and income-tax losses will put a further squeeze on state and local budgets in the second half. Worse, the dragged-out war process could threaten the tax cuts expected from Washington this summer. "War could preoccupy policymakers and tend to push back talks about the tax plan," says Goldman's McKelvey. A delayed tax plan could be the final blow to the consumer sector. The steep February drop in confidence suggests consumers are getting tired. Beside job worries and terrorism fears, higher fuel prices are cutting into household budgets.

A consumer retrenchment is the last thing the economy can handle. And it would hit autos particularly hard. Sales of cars and light trucks were waning before the February blizzard blew across the East Coast during the important Presidents' Day weekend. Now, both General Motors (GM ) and Toyota (TM ) are cutting second-quarter production, with Ford (F ) expected to follow suit. Second-half plans could be trimmed as well, especially since zero-percent financing has lost its novelty. More important, the key difference between the spending rebound following the 1991 Gulf War and this time out is the prospect of more terrorist attacks on U.S. soil. That could keep families at home, with their bottled water and duct tape.

Further out, the economy will have to digest enormous federal budget deficits, stemming from tax cuts and government spending boosted by the cost of war and rebuilding in Iraq. That threatens to crimp private investment and lift borrowing costs.

For now, the hope remains for a rapid and successful war with Iraq. Yet even the best of scenarios gives no guarantee that the economy, still struggling under the excesses of the 1990s, will benefit much from a postwar bounce.

www.bday.co.za

WASHINGTON - US petrol prices at the pump shot to a record high this month, forcing consumers to feel the financial pain of the threatened war in Iraq, a motorists' association says. Prices leapt to an average of $1.719 a gallon of regular petrol (45.4 cents a litre) from $1.63 a month earlier, the American Automobile Association said.

It eclipsed the previous record of $1.718 a gallon set May 15, 2001, the AAA said.

"Motorists should also be prepared to resist the urge to immediately buy gasoline following a possible declaration of war on Iraq, or the commission of a terrorist act," AAA said in a statement.

"This is because the panic buying of gasoline and the formation of gas lines have the potential of causing needless fuel shortages in local areas," it warned.

AAA spokesman Geoff Sundstrom said oil prices rose as a possible war approached in Iraq, much of the US had an icy winter, and Venezuela's oil industry was temporarily hit by a strike.

Many US states also require gasoline stations to convert to a costlier, lower emission gasoline when warmer weather arrives, pushing up prices around this time of year, he said.

Petrol demand, despite the price increase, remained strong, Sundstrom said.

"The American economy is largely geared towards the operation of private vehicles rather than the use of public transport, so we say that gasoline (petrol) demand is really inelastic," he added.

AFP

www.guardian.co.uk Comment Sami Ramadani Tuesday March 18, 2003 The Guardian

A couple of weeks ago I went with my partner and our little boy to see our Labour MP, Bridget Prentice, in the House of Commons. We waited for two-and-a-half hours but she neither showed up nor sent a note. I wrote her a brief letter but she hasn't acknowledged it yet.

We are British citizens of Iraqi origin. My wife, who is Kurdish from Sulaimaniyah, fled Iraqi Kurdistan in the mid-1980s, risking her life in the process. I am also an exile and cannot go back to Iraq because of my resistance to Saddam's tyranny. Our son is four, and was born here.

As a family, we wanted to tell our MP how we feel now, with war against Iraq imminent. So far, she has supported the government; we went to see her in the hope that, even at this late hour, she will change her mind and vote against war.

My wife sees Iraqi victims of torture every day where she works, at the Medical Foundation for the Care of Victims of Torture; we wanted to tell Bridget Prentice that Iraq is in desperate need of regime change and the establishment of a democratic order. The Iraqi people need it much more than Bush and Blair could ever understand. But democracy for Iraq will not be achieved by bombing and invading the country. It cannot be trusted to George Bush. The US will not accept a democratic verdict which is not to its liking in a strategically important country, possessing the world's second largest oil reserves. They strangled just such a verdict in Congo in the 1960s and in Chile in the 1970s, and they are working hard to reverse it in Venezuela today.

In Iraq, the US record speaks for itself: it backed Saddam's party, the Ba'ath, to capture power in 1963, murdering thousands of socialists, communists and democrats of all shades; it backed the Ba'ath party in 1968 when Saddam was installed as vice-president; it helped him and the Shah of Iran in 1975 to crush the Kurdish nationalist movement; it increased its support for Saddam in 1979, the year he elevated himself to president, helping him launch his war of aggression against Iran in 1980; it backed him throughout the horrific eight years of war (1980 to 1988), in which a million Iranians and Iraqis were slaughtered, in the full knowledge that he was using chemical weapons and gassing Kurds and Marsh Arabs; it encouraged him in 1990 to invade Kuwait when the Arabic-speaking US ambassador in Baghdad, April Glaspie, told him on July 25 1990 that the US had "no opinion on Arab-Arab conflicts" when she knew that Saddam's forces were only one week away from invading; it backed him in 1991 when Bush suddenly stopped the war, exactly 24 hours after the start of the great March uprising that engulfed the south and Iraqi Kurdistan (US aircraft were flying over the scenes of mass killing as Iraqi helicopter gunships were aiding Saddam's forces crush the uprising); and it backed him as the "lesser evil" from March 1991 to September 11 2001 under the umbrella of murderous sanctions and the policy of "containment".

Then, having caused the death of about half a million Iraqis, mostly children, through sanctions, Bush and Blair declare that containment and sanctions are not working after all. Blair must reconcile his strongly and suddenly found conviction that war is better than containment with the fact that the US hawks, now prominent in the Bush administration, have been advocating a war on Iraq for the past 12 years - not to liberate the Iraqi people, or to protect the world from weapons of mass destruction, but to impose US hegemony on a strategically important country. September 11 gave them their opportunity. Blair's "sincerity", and his sympathy for the Iraqi people are, alas, nothing but grist to Rumsfeld's mills of war.

Indeed, one of the strongest arguments against war, that should prompt all its supporters to re-examine their consciences, is the fact that if Saddam does still possess weapons of mass destruction then it is probable that this amoral tyrant will use them if his removal from power becomes imminent.

Our MPs must raise these questions in the Commons and oppose the US war plans, even at this late hour. The US desperately needs Britain as a political and moral prop, a fig leaf for claiming the existence of an international alliance for war. It is our MPs' duty to expose this and side with the Iraqi people's own struggle to remove Saddam's regime and establish democracy in Iraq. In this, they will also be acting in the British people's best interests.

If allowed to run its course, the Blix programme of inspections would have emboldened the Iraqi people to challenge Saddam's regime in the knowledge that Saddam would not be using chemical weapons to crush future uprisings. This would have been particularly likely if the inspections and monitoring regime had been combined with strict military and diplomatic sanctions, while lifting the economic sanctions, which have not only caused so much death and pain for the people but also strengthened Saddam's hand against them. If all this had been coupled with an international campaign to aid the Iraqi people to remove Saddam and establish democracy, we are confident that they would have succeeded; their past heroic struggles were always hampered by US, wider western and Soviet backing for Saddam's regime.

The acceleration of war plans coincided with Blix's announcement of active Iraqi cooperation and his demands for a few months to complete his work. The US administration was clearly panicked by the prospect of a peaceful disarmament of Saddam. They are fearful of the prospect of seeing the Iraqi people taking on the tyrant and his dictatorial state.

Much is made of Tony Blair's courage. We are told that he is being brave in his deafness to majority opinion in Britain and the world. The truth is that he is mesmerised by US power, convinced he will be on the side of the victors and bask in the glory of their might once they raise the US flag in Baghdad, that beloved city of my childhood. But Blair's glory, even if it comes to pass, will be short-lived.

· Sami Ramadani is an Iraqi political exile and a senior lecturer in sociology at London Metropolitan University.

www.forbes.com Reuters, 03.17.03, 10:50 PM ET (Refiles to reformat)

SINGAPORE, March 18 (Reuters) - Oil prices fell sharply on Tuesday as U.S. President George W. Bush gave Iraqi leader Saddam Hussein 48 hours to leave Iraq or face an invasion.

Analysts said Bush's ultimatum, in a televised address to the American public, firmed up the timing of a possible attack and took away uncertainty in the market, which drove oil close to $40 a barrel in February, a level not seen since the Gulf War.

"Saddam Hussein and his sons must leave Iraq within 48 hours," Bush said. "Their failure to do so will result in military conflict, commenced at a time of our choosing."

U.S. light crude fell to a near six-week low at $33.80 a barrel, down $1.13 cents. London's Brent crude dropped 78 cents to $28.70 a barrel, the lowest level since early January.

"Bush has confirmed that the United States is 48 hours away from starting an invasion and that means that the end of uncertainty for the market is near. No market likes uncertainty," said David Thurtell at Commonwealth Bank in Sydney.

Expectations of a quick allied victory with little chance of major disruptions to crude supplies from other Middle East producers also helped cool oil prices, which gained 60 percent in just over three months from the beginning of December.

"The oil market is working on the basis there will be an overwhelming allied victory. The only surprise in the market is for that (victory) not to happen," said Sydney-based independent oil analyst Simon Games-Thomas.

Selling by speculative investors has driven crude down 10 percent in the last four trading days. Investors want to avoid being caught out by a sudden price slide if Middle East oil flows escape severe disruption.

In the first Gulf War, prices dropped from over $30 to barely $20 when the United States launched its January 1991 offensive as it became clear Iraq would not harm oilfields in Saudi Arabia, the world's biggest oil exporter.

The Middle East supplies about 40 percent of global crude exports.

Analysts warn, however, that the main risk to crude oil remains to the upside if Iraq should destroy its own oilfields or any war is difficult and drawn out.

IRAQI EXPORTS NEAR TO STANDSTILL

An invasion would almost certainly close Iraqi crude output for a period and its southern neighbour, Kuwait, may also be forced to halt pumping at some fields close to its borders with Iraq. Kuwait pumps roughly two million barrels daily.

Iraq's U.N. supervised oil exports, which until recently were running at about two million barrels per day, have already slowed to a trickle with traders unwilling to take a risk on uncertain supplies due to war fears.

U.N. officials said on Monday exports would come to a standstill when U.N. staff are pulled out of the country, which could happen as early as Tuesday.

The OPEC producers' cartel has pledged to meet any supply gap stemming from hostilities, but a prolonged outage of Iraqi or Kuwaiti crude would test the group's spare capacity to the limit.

The United States, the world's biggest oil guzzler, has made preparations to release strategic oil reserves to prevent any interruption to deliveries if needed, said Republican Rep. Billy Tauzin, who is also chairman of the U.S. House Energy and Commerce Committee.

Analysts said confidence had grown that it was unlikely there would be any major supply crunch in the second quarter, which sees a seasonal downturn in oil demand with the end of winter.

"OPEC has been storing crude for some months and there is a significant amount of OPEC crude already on the water heading to western ports. Venezuela production looks to be increasing," said Games-Thomas.

"It looks like there could be a surplus of crude in the short term, if there's no serious damage to oil facilities during the war," he said.

Production in OPEC-member Venezuela, whose oil exports were slashed by an anti-government strike since December 2, continued to recover with government officials putting output near to three million bpd. Rebel oil workers say output is closer to two million bpd.

www.vanguardngr.com By Hector Igbikiowubo Tuesday, March 18, 2003

Amidst persisting supply hic-ups at filling stations across the country, the Petroleum Products Pricing and Regulatory Committee (PPPRC) has said that it does not anticipate any price increases in the near future, pointing out that prices of petroleum products cannot be set with a war situation.

Major marketers and the Nigerian National Petroleum Corporation (NNPC), have indicated that landing cost of premium motor spirit (PMS) popularly called fuel is now N34 per liter with NNPC attributing the high cost to the gulf crises as well as the crises in Venezuela.

The secretary of the PPPRC, Dr. Olawole Oluleye told Vanguard that petroleum products prices have exhibited an upward swing lately because of the fear of war between Iraq and the United States of America.

But she reiterated the committee’s position on pricing saying that no immediate increase (s) was anticipated over the ongoing face - off between Iraq andUnited States.

On the recent report that major marketers are pushing for an increase in prices, she said that the major marketers are just one of the players in the sector and that they can not dictate to the committee.

According to Oluleye the federal government has a social responsibility to the people and would not sit idly and allow the people to suffer.

On the fundamentals that can lead to an increase in prices of petroleum products, she pointed out that they include the cost of crude oil, the exchange rate and cost of freight and insurance among others.

She however explained that since import prices of petroleum products and the local prices of petroleum products are at parity the major marketers cannot participate in the importation of petroleum products.

The communications manager of Unipetrol Nigeria PLC ,Tokumbo Durosaro while speaking with Vanguard reiterated the position of the major marketers saying that they cannot import petroleum products under the prevailing market situation .

It would be recalled that the managing director of the company, Adewale Tinubu, had while speaking on behalf of other marketers at a meeting with the NNPC canvassed this same position.

Other marketers who pleaded anonymity expressed similar sentiments, pointing out that landing cost of petroleum products in Lagos after cost freight and insurance have added up now to N34 per litre.

They maintained that at that rate it would be suicidal for any major marketer to import products under the prevailing price regime which has the price of pms pegged at N26 per litre.

It would be recalled that this was the reason why major marketers insisted at the meeting with the group managing director of the NNPC that they would rather have the corporation continue to import products and distribute to them.

Another industry operator who pleaded anonymity explained that it was wrong of the NNPC to try to demonize the major marketers by giving the impression that they have vowed not to import products.

The operator pointed out that since the NNPC gets allocated $450,000 barrels of crude oil per day at a cost of $18 per barrel, considering the prevailing market prices of crude oil , the corporation has no business complaining.

He also noted that the corporation has not been asked to account for the difference it was getting when Plat prices had not appreciated to the current level. He further pointed out that if the federal government really wants to create a level playing field, then it should also consider allocating crude oil to major marketers at $18 per barrel.