www.chicagotribune.com Special report Business By William Neikirk Tribune senior correspondent Published March 19, 2003

WASHINGTON -- Every conflict has winners and losers, but a war with Iraq could hurt many Americans economically if it lasts longer than the few weeks projected by the Bush administration, experts say.

A longer-than-expected war could spell the end for one or two airlines, keep gasoline prices high, reduce consumer spending and possibly push the U.S. and world economies into recession, according to economic analysts.

From President Bush's standpoint, dispatching Saddam Hussein swiftly has not only major military and political significance, but also far-reaching economic implications. A quick, relatively painless war could hasten a return to confidence and speed decisions by businesses to invest and hire again.

Yet even if the war is short, the U.S. economy remains too weak to bounce back strongly, said David Wyss, chief economist at Standard & Poor's Corp. Businesses remain burdened by overinvestment from the 1990s, and demand for U.S. goods is weak worldwide.

"We won't go back to a strong recovery pattern," Wyss said.

The number of war winners is likely to be sparse. The postwar reconstruction period in Iraq could prove highly profitable for U.S.-based international construction firms, such as Bechtel Corp. Defense contractors will rake in more earnings from bomb and missile orders.

But in the job market, where it counts for most Americans, the war could cause higher unemployment if U.S. forces are not successful quickly. To Campbell Harvey, professor of international finance at Duke University, the longer the war persists, the more severe the economy's troubles will become.

John Silvia, chief economist at Wachovia Securities, said a swift war would not rejuvenate the job market anytime soon.

"Jobless claims are not going down, and help-wanted advertisements continue to be low," he said. "It tells you the employment market is not in good shape at all."

A war of any length will be hard on the long-term unemployed, Silvia said. Since 2000, the number of Americans who have been out of work 27 weeks or more has tripled. This group now represents one-quarter of the unemployed.

Kurt Barnard, president of the Barnard Retail Consulting Group in Upper Montclair, N.J., said he is concerned that retailing will be hurt by fears of terrorist attacks in the U.S. If only 2 percent or 3 percent of shoppers stay away from malls, he said, sales could be sharply reduced.

In general, Barnard said, war makes people conservative about spending their money.

"Their mood will not be one of happiness. The mood will be sober," he said, adding that consumers are likely to forgo buying big-ticket items such as cars.

Another loser will be the U.S. taxpayer. The cost of fighting the war--estimated as low as $61 billion and as high as $200 billion--will be borne by American taxpayers, unlike the Persian Gulf war in 1991, when many other nations chipped in. In addition, taxpayers will be on the hook for much of the cost of reconstruction in Iraq.

Bush administration officials say Iraqi oil will help defray reconstruction costs. But Michael Drury, chief economist at McVean Trading and Investments, a Memphis-based futures trading company, disputed that assessment.

"The idea that oil revenues will pay for reconstruction is a joke," he said. "Now it is taking all their oil revenues just to feed the country, to keep the people from starving."

A key economic issue will be how high the price of oil will go during hostilities and how long it will take for that price to fall. Laurence Meyer, economist at the Center for Strategic and International Studies and a former Federal Reserve member, said that if there is no damage to the oil fields, oil prices could settle down to $25 to $30 a barrel by the end of the year.

In Tuesday's trading, oil prices on the New York Mercantile Exchange dropped 9 percent, to $31.67 a barrel, the lowest price in two months, on expectations that the war will be over quickly and that global stockpiles are sufficient to satisfy demand. But if war fortunes take a turn for the worse, oil prices could skyrocket, said Harvey of Duke University.

The fear of oil prices surging over $40 a barrel and staying there for months during a difficult conflict may have dissipated for now. But the very possibility of this underscores the economic importance of a quick victory.

"A lot of the current thinking is that oil prices may stay up longer than people think," said Carl Tannebaum, chief economist at Chicago's LaSalle Bank. "We have depleted a lot of supply, and [oil supplier] Venezuela is still in the midst of a general strike."

Opinion is divided on whether investors will be the winners in war. Bush's ultimatum for Hussein to leave Iraq by Wednesday night or face U.S. military action caused a rally on Wall Street. But now the question is whether the market will continue rising.

"Initially, the markets respond favorably because there is some resolution of what is going to happen," said Ed Peters, chief investment officer at PanAgora Asset Management Inc. in Boston. "If things go swiftly [in the war], the market will continue to do well. If the victory is messy, that could make it worse."

In the long run, however, stock prices require a stronger economy with greater corporate profitability, Wyss said. And even if the war is short, he said, it would take time before the recovery gathers enough steam to drive stock prices higher.

The travel industry, which suffered disproportionately during the 1991 Persian Gulf war, is again likely to be a major loser in this conflict. The airline industry, in a plea for more government assistance, already has warned that its business could be hurt drastically by war.

"Even without a war, you might lose an airline," Wyss said. "And by that, I mean liquidation, not just bankruptcy."

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www.republicons.org by: Erik P Sorensen
Republicons.org 3/19/2003

The numbers are remarkably stark, and they have yet to be expunged from the USGS website. In its World Petroleum Assessment 2000 the U.S. Geological Survey analyzes, in painstaking detail, the existing global oil reserves, known and inferred from geological analysis. It states that more than two thirds of the world´s remaining recoverable oil reserves are in the Arabian and Persian Gulf region, certainly no surprise. However, the USGS asserts that fully 95% of all known petroleum can be found outside the U.S.

The final analysis of this formerly Fertile Crescent is telling. The USGS subdivided the Persian Gulf region into geological “provinces”, an appropriate colonial term, each with specific characteristics. Of the 28 provinces in this region the one cited as having the greatest percentage of known petroleum was the “Mesopotamian Foredeep Basin”. With 13.8% of the world’s known petroleum volume, this province just happens to be located primarily in Iraq (see inset map).

How much oil does this narrow swath of land have? Well, according to USGS approximations, the basin possesses over 61 billion barrels of as yet undiscovered oil, maybe as much as 112 billion barrels. To put that in context, the rosy analysis of the amount of gross volume output from the Arctic National Wildlife Refuge was around 6.7 billion barrels, and that was inclusive of known and unknown sources. Not to mention that the Persian Gulf oil reserves are more accessible and there already exists a robust infrastructure for cheap global distribution.

But wait, there’s more. Which province ranks third in this region with 7.6% of global oil reserves? It is none other than the Zagros Fold Belt province that comprises part of Iraq and part of Iran (see inset).

In fact, when these two regions are coupled, which they are in several references within the USGS survey (as the “Zagros-Mesopotamian Cretaceous-Tertiary Total Petroleum System”) it becomes the prospective source of over 21% of the total global petroleum reserves.

So, what could be the prospective motivation for military upheaval in Iraq and isolation of a moderating Iranian leadership? The conclusion is painfully clear. The inclusion of North Korea in the “Axis of Evil” was merely a red herring (and I do mean “red”). And it appears as if Kim Jong Il saw this chimera and has called Bush's bluff. We have witnessed the disparate treatment of actors within this alleged Axis; Iraq professes to not possess weapons of mass destruction (thus far borne true by Hans Blix) and has troops massing at its border while North Korea has flaunted its capacity to build nuclear weapons and flouted the Nuclear Non-proliferation Treaty yet has been handled with care.

Let’s return to the USGS assessment for some insight. The USGS deemed the entire Korean peninsula as neither a “priority” nor even a “boutique” province for assessment. A boutique province is defined as a “perceived viable future petroleum resource.” Good fortune to Mr. Kim.

So is there a third leg to this axis of oil? You bet there is. The USGS reports that Venezuela has an additional 20-40 billion barrels of oil and between 50,000 and 100,000 billion cubic feet of natural gas undiscovered. Of course, it would have been unseemly to include a leader among the Axis of Evil who was popularly elected (unlike some rulers we know). But, as we have learned, this has not prevented the Bush administration from embracing an attempt to overthrow Hugo Chavez by the rich. Ari Fleischer offered this support of democratic transition on April 12, 2002 in the aftermath of the coup attempt, “We know that the action encouraged by the Chavez government provoked this crisis… The results of these events are now that President Chavez has resigned the presidency.” The latter statement was, of course false. Now, the business interests and their labor lackeys in Venezuela hold the economy hostage and Bush’s solace; encourage Chavez to resign or call early elections.

Not being a conspiracy theorist, I believe things are actually as bad as they are, I see no multinational world domination scheme to enslave Americans. The reality is that Bush and Cheney are beholden to the oil industry for their very existence and see it as their solemn oath to uphold industry interests at all costs. The long term consequences of U.S. domination of the assets of the Persian Gulf, however, could be devastating. The Saudi’s ambivalent amity toward the U.S. has already fomented such dire enmity for America as to spawn Osama Bin Laden and his minions, imagine the pestilent seeds that could be sewn by direct occupation.

For more information visit: greenwood.cr.usgs.gov

www.abs-cbnnews.com By NEELA BANERJEE The New York Times

Consumers may be complaining mightily about gasoline prices, but so far they are not buying less, industry experts say. That, in turn, is helping to keep gasoline prices high.

The Energy Information Administration (EIA), the analytical arm of the Energy Department, predicts that even if crude oil-prices decline over the next few months, retail gasoline prices will probably stay high, averaging $1.76 a gallon in April. The current average retail price of gasoline is $1.73 a gallon, the Energy Department said.

“At the margin, which is where prices are set, any measurable increase or decrease in demand will have an effect on price,” said Lawrence Goldstein, president of the Petroleum Industry Research Foundation. “We’re seeing a very slow increase in demand. But if demand is still going to grow, prices will stay high relative to crude oil.”

Because of changes in Americans’ driving habits over the last decade, the demand for gasoline changes little, even when prices climb. The vehicles that many people are driving, most notably sport-utility vehicles and light trucks, get far lower gas mileage than cars did 20 years ago.

In roughly the same period, the number of drivers has increased overall, as has the number of miles people drive each year, according to David Costello, an analyst with the EIA. And despite the widespread grousing about high fuel prices, when adjusted for inflation, prices are actually lower than they were 20 years ago, Costello said.

“There’s no doubt about it that people are grumbling,” said Scott Hartman, president of the CHR Corp., which owns 51 convenience stores with gas stations around York, Pennsylvania. “But we don’t see any changes in the gallons that they’re buying. Actually, we’re seeing some nice growth figures.”

At its meeting last week in Vienna, the Organization of the Petroleum Exporting Countries argued that a seasonal drop in demand would help keep a lid on crude oil prices, which have stayed over $30 for weeks now. On Tuesday, the price of crude oil for April delivery fell $3.26, or 9.3 percent, settling at $31.67 a barrel on the New York Mercantile Exchange.

Gasoline futures followed suit, with the wholesale price of fuel for April delivery falling 6.52 cents, to 96.19 cents a gallon, the lowest end-of-session price since February 3.

Analysts and traders said the decreases were impelled by a belief in the oil markets that a war with Iraq would be quick and would result in little damage to oil fields. Other analysts warned that no one could predict what might happen in Iraq. More important, they said, the underlying factors that have driven up crude oil and gasoline prices persist, and an American victory in Iraq would not change them overnight.

OPEC made a series of output reductions last year that buoyed prices and led oil companies and refiners to draw down their inventories of crude oil and petroleum products. In the winter, when companies normally build stocks of gasoline for the spring and summer, supplies of crude oil plummeted after a strike brought Venezuela’s oil exports to a halt.

Then, a cold winter in the Northeast and mid-Atlantic motivated refiners to squeeze more heating oil from a barrel of oil, at the expense of gasoline. Now, supplies of crude oil, gasoline and heating oil are at their lowest levels in years.

With crude oil prices so high and stockpiles so low, consumer demand has proven to be an important factor in buoying gasoline prices. The question is, how high do prices have to go before car owners change their driving patterns?

California, where prices commonly exceed $2.00 a gallon, now has the most expensive gasoline in the country -- largely because of its environmental regulations. California requires an additive to make cleaner-burning gasoline, ethanol, that constrains how many gallons of gasoline can be wrung from a barrel of oil and complicates the refining process.

But Tom Robinson, chief executive of the Robinson Oil Corp., which is based in San Jose and owns 28 local gas stations, said his customers continued to buy as much gasoline as they did before prices shot up.

“In California, we’ve had numerous run-ups, and this is the highest so far,” Robinson said. “And people know when the price goes up, it will come down.”

Some industry analysts and consumer groups said people might drive less if prices approached $3.00 a gallon or stayed near $2.00 a gallon for an extended period. But others contend that consumers adjust to prices.

“It has been our contention since the 1970s that consumers really don’t change their driving habits on the basis of price,” said Geoff Sundstrom, a spokesman for the Automobile Association of America. “They only change due to supply problems. At this point, the tightness in the markets is pretty much invisible to consumers in that they’re not going to gas stations that have run out of fuel.”

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www.theage.com.au March 20 2003

America is seeking to ward off any threat to its economic domination of the world, writes Kenneth Davidson.

George Bush planned "regime change" in Iraq before becoming United States President in January 2001. The events of September 11, 2001, were the pretext for invasion of Iraq, not the reason.

The blueprint for the creation of a "global Pax America", to which Bush subscribes and which is driving the invasion of Iraq, was drawn up in September 2000 for Dick Cheney, Donald Rumsfeld, Paul Wolfowitz, Jeb Bush (George's younger brother) and Lewis Libby (Cheney's chief of staff).

The document, called Rebuilding America's Defences: strategies, forces and resources for a new century, was written in September 2000 by the neo-conservative think tank Project for the New American Century.

According to the document, written three months before Bush became president, "the US for decades sought to play a more permanent role in Gulf regional security. While unresolved conflict with Iraq provides the immediate justification, the need for substantial American force presence in the Gulf transcends the issue of the regime of Saddam Hussein."

The document outlines the global ambitions of the Bush Administration. It sets out a "blueprint for maintaining global US pre-eminence, precluding the rise of a great power rival, and shaping the international security order in line with American principles and interests".

The question for John Howard must be: to what extent does his Government subscribe to the Bush strategy outlined in the think tank's document?

Howard says Australia's participation in this war is in Australia's national interests. How?

To answer that question we must know why the war is being fought in the first place. For all I know, Bush, Howard and Tony Blair may be absolutely sincere when they claim that getting rid of Saddam is a humanitarian act that will make the Iraqis better off, or that Saddam has the will, the motive and the weapons of mass destruction capable of threatening other countries. But these are not the real reasons for the invasion.

The real reasons can be summed up as deciding who controls Middle East oil and gets access to the water from the Tigris and Euphrates, and what currency will be used to pay for the development of the oil and water resources.

According to the think tank document, the US would have to increase its defence spending to 3.8 per cent of GDP (which it has just achieved) to finance an American military capability "to fight and decisively win multiple, simultaneous major theatre wars" and to "perform constabulary duties associated with shaping the security environment in critical regions".

This is a massive task that can only be achieved if the US can continue to draw on the resources of the whole world, which in turn is only possible if the US can continue to run massive trading deficits with Western Europe, China and Japan. In other words, these regions must remain willing to exchange the product of their industries for American dollars.

It would be fatal to America's global strategic ambitions if countries in Europe began to ask for euros instead of US dollars for their exports, or if China demanded settlement of their accounts with the US in yuan instead of US dollars. The US would have to redirect domestic demand for imported goods paid for in dollar-denominated IOUs into exports to earn yuan and euros to pay for US imports.

It is difficult to see how the US could develop new, internationally competitive industries and run a military machine on the scale envisaged by the think tank without a massive increase in taxation and redistribution of wealth to the productive elements in the economy without precipitating a global recession.

In 2000, Saddam's regime had the temerity to demand payment in euros for the trickle of Iraqi oil the US has allowed onto the international market. Iran and Venezuela are following Iraq's example. This is the real threat to US hegemony.

If the US can control Middle East oil production, it can control the industrial development of Europe, China and Japan (and Australia), to prevent a rival to its hegemony emerging. But to do this it must retain the greenback as the world currency.

It is possible to make a weak case based on realpolitik why Blair is along for the ride with Bush in Iraq (BP and Shell), but it is impossible to see what Australia will get out of this adventure even if it "succeeds".

Bush personifies the American quest for absolute security. Americans don't yet understand or care that this status can only be achieved by making everybody else absolutely insecure.

This is why the most lasting thing to come out of the war with Iraq is likely to be the faster development of a unified Western Europe and an economically powerful China to challenge US hegemony.

Kenneth Davidson is a staff columnist. dissentmagazine@ozemail.com.au