www.theworldlink.com By Bruce Stanley, AP Business Writer

LONDON - Saddam Hussein may have organized a meticulous plan for sabotaging Iraq's oil fields in a scorched-earth tactic designed to cripple Iraqi production.

The oil industry has buzzed with reports in recent weeks that Iraqis are rigging their wells with explosives, hoping to slow a U.S.-led attack and making the country's oil wealth worthless for any new government.

"We can confirm reports that (Saddam) has taken measures to booby trap oil wells by wiring the wells so that one person can blow them up," said Defense Department spokeswoman Megan Fox.

"If the worst happens and he does detonate something that causes the oil wells to catch fire, we'll do everything we can. Those assets belong to the Iraqi people, and as much as possible we'd like to keep them intact," she said.

In 1991, Iraqi troops needed just a few days and some plastic explosives to destroy more than 700 well heads and turn Kuwait's occupied oil fields into a desert inferno.

A loss of oil from Iraq - home to the world's second-largest oil reserves - could crimp supplies for importing countries, including the United States, which depends on Iraq for 2 percent of all the crude it consumes.

However, both Saudi Arabia and Venezuela have pledged to keep the oil flowing in wartime.

Oil exports are also a major source of the money that would be needed to pay for Iraq's reconstruction after a war. Because of their strategic importance, the Defense Department says it will try to secure Iraq's oil fields quickly to prevent Iraqi forces from damaging the country's 1,685 wells.

When Iraqi troops retreated from Kuwait in February 1991, they attached plastic explosives to well heads and piled sandbags against them to direct the force of the explosions for maximum effect.

The result was geysers of burning crude at 603 wells, serious damage at more than 100 others and widespread environmental degradation. Teams of firefighters from the United States, Canada and eight other countries worked from April until November to put out the fires.

Most of the teams used sea water pumped through Kuwait's empty oil pipelines to battle the fires. The heat was so intense, at more than 2,000 degrees Fahrenheit, that water sometimes continued boiling on the ground for two days afterward, said Mark Badick of Safety Boss, Inc.

"We've had fire helmets melt on our heads," said Badick, whose Calgary-based firm put out 180 of the Kuwaiti well fires.

Firefighters from Hungary had a different technique, using two jet engines mounted horizontally on a tank chassis - a homemade vehicle they called "Big Wind" - to blast flame-retardant foam at the fires.

It took Kuwait more than two years and $50 billion to restore its oil output to prewar levels. If Iraq sabotaged its oil fields, any cleanup could take far longer and cost much more.

Iraq's fields and pipelines are badly run-down after 12 years of U.N. economic sanctions. Its fields are also much farther from the sea than those in Kuwait, meaning a ready source of water might not be so easily available.

Destruction could be especially bad if Iraqis set off explosives underground, deep within the well shafts themselves. If that happened, firefighters would have to drill a new "relief well" and pump a mixture of sand, gel and mud into each damaged shaft to try to plug it up and stop the blowout.

"It's a long, arduous process," Badick said. Whereas he and his crews put out as many as five fires a day in Kuwait, cleaning up after a single underground explosion can take two months.

Even if the Iraqis did booby-trap their oil fields, Manouchehr Takin, an analyst at the Center for Global Energy Studies, said Saudi Arabia, Venezuela and other OPEC member countries could increase production to offset Iraq's 2 million barrels a day in exports.

Saudi Arabia, which has the world's largest crude reserves, repeatedly has suggested it would boost its output to keep supplies flowing. Also, the United States and other oil importing nations could tap their 4 billion barrels in strategic petroleum reserves, if necessary, to cover a shortfall.

Brown & Root Services of Houston has drawn up a plan for the Defense Department for containing and assessing any damage to Iraqi oil installations, but the Pentagon so far has awarded no contracts.

The challenge for such companies would multiply if Iraq used chemical, biological or radioactive material to sabotage its oil fields.

Special suits designed to protect a wearer against biological or chemical agents would disintegrate in the heat of a burning well. Firefighters might have no choice but to wait until the fires burn themselves out.

"That's a whole new ball game," said Peter Gignoux, head of the oil desk at Salomon Smith Barney.

www.starnewspapers.com Thursday, March 20, 2003 By Jim Pecora

Fuel prices that have been climbing for months eased and even fell slightly as the first U.S. strikes against Iraq were launched.

In a survey taken this morning for AAA Chicago, the average price for a gallon of unleaded regular gasoline in Illinois was about $1.72, down 0.5 cent from Wednesday. The diesel average was about $1.84, also down a half-cent.

The Chicago area average price Thursday morning was about $1.78 for unleaded regular, down 0.4 cent from Wednesday.

Diesel in the metropolitan area was averaging about $1.89, down 0.5 cent from the previous day and 3.6 cents below the area's diesel record, which was set March 12.

AAA Chicago reported March 12 that the price of a gallon of unleaded regular gas had reached almost $1.84 in the Cook County area, up 13.8 cents from February.

The average Will County price was about $1.63 a gallon, one penny higher than the average price in northern Indiana.

But that price climb lasted only a few more days, and began to decline Wednesday.

The decline followed a plunge in crude oil prices on international markets.

Experts said traders appeared convinced the United States was going into a short and successful war with Iraq. The slide came within weeks of crude oil prices approaching record levels.

AAA Chicago spokesman Steve Nolan said today that the slight decline in prices at the pump is because "crude oil prices dropped significantly."

"I think a lot of this is due to the industry's response to what's happening in Iraq and in anticipation that it will be a short war.

Also, there is the idea that the United States will release some oil from its strategic oil reserves.

"If it's a long war, then all bets are off as to where (the prices) are going," he said.

The conflict is beginning at a time when gasoline prices traditionally rise, as refiners convert to production of reformulated gasoline for the summer driving season.

At the same time, diesel fuel prices, which had been setting daily records, also began falling, with the today's average price in Illinois at about $1.85, down a half-cent from the previous day and 2.7 cents down from the record set March 14.

"It's killing us," Don Skafgaard, operations manager at Leoni Motor Express, said of diesel fuel prices. "It's not just companies like us; it's doing it to everybody, all the trucking companies."

He said the Chicago Heights trucking firm, which runs about 50 trucks in a 250-mile radius around Chicago, was spending about $900 more per month to run each of the trucks.

"I do run (some) owner/operators, and it's taking food right off their tables," Skafgaard said. "These guys who run for me, they work really, really hard, and the fuel's killing them."

Nolan said the situation will worsen if the war drags into the spring because of the annual shift to reformulated gasoline.

"If there's no quick resolution, and we switch over to reformulated gasoline, the prices could be even higher," Nolan said.

The record high average price for a gallon of self-serve unleaded regular in Illinois is $2.01. It was set June 20, 2000.

The average prices for a gallon of self-serve unleaded regular was $1.20 in August 1990, when Iraq invaded Kuwait. The price leaped to an average of $1.34 a gallon in September, $1.44 in October, $1.50 in November and $1.51 in December before beginning to decline.

The price began falling back in January 1991, when the United States and its allies began launching attacks against Iraqi targets in Kuwait and Iraq itself. The ground attack began Feb. 24 and the war effectively ended within days.

The average gasoline price was down to $1.39 in January 1991, $1.31 in February and back at $1.20 in March.

Bill Fleischli, executive vice president of the Illinois Petroleum Marketing Association, cited three reasons for the escalating fuel prices going into the war.

"There are three reasons," he said, "the war situation; cold weather in the southeastern part of the country, so more crude oil goes to heating oil than gasoline, and third, Venezuela, the fifth-leading oil producer, had been hit with that strike or uprising in mid-December.

"At the same time, crude oil stockpiles were at the lowest level since 1975. There are shortages there now. Crude oil prices have been going up, and gasoline has been going up."

An unusually severe winter with major snowstorms has been pounding the eastern United States, boosting demand for home heating oil.

The record price for a barrel of crude oil hit $41.15 a barrel in October 1990, after Iraqi forces swept through Kuwait.

Fleischli noted that the recent surge in prices came even as Saudi Arabia was increasing production "to try to help for the Venezuelan situation." He said there also had been a strike in Nigeria, the ninth-leading producer.

Also in February, fire erupted at the huge BP refinery just across the border in Indiana. The BP facility is the third-largest oil refinery in the United States, Fleischli said, and it provides a lot of fuel for the Midwest, which was experiencing among the highest gasoline and diesel fuel prices in the country before the war started.

www.ocweekly.com A CLOCKWORK ORANGE Vol. 8 No. 29 March 21 - 27, 2003
by Matt Coker

PARTY OUT OF BOUNDS After being away since, hell, winning the 2000 presidential election, it was nice to see Democrats returning to their role as the opposition party this past weekend. Of course, they had to come to the nation’s most Democratic state, California, to pull it off. With the economy in the shitter and the nation all a-jitter, the time was ripe to snipe at the status quo during the state Democratic convention in Sacramento. Those hoping to lead the party into the next tainted presidential election were cheered like rock stars if they openly opposed Dubya’s Iraqi quagmire—and likewise jeered if they supported war. It was quite refreshing, especially considering that even all-right-wing, all-the-time Fox News had been begging Democrats to mount some kind of challenge to the other side if for no other reason than great TV. How anemic had them Dems been? As recently as the president’s March 8 radio address, the Democratic Party countered with . . . drum roll . . . Gray Davis, whose approval ratings are lower than Bush’s—even among California Democrats! What, was Charles Manson busy?

CNN’S GOT YOU COVERED Over images of previous pro-war picketing and right-wing radio commentators bashing liberal peace protesters, a reporter on the March 14 Live From CNN daytime news program breathlessly previewed support-our-troops/hooray-for-USA/bomb-Baghdad festivities scheduled for that weekend in seven cities, including CNN’s hometown of Atlanta. The bit ended with the reporter live inside an unidentified manufacturing warehouse, where he held up what people could expect to see at all seven kill-Iraqi rallies: white T-shirts with identical, multicolored "Support Our Troops" logos. As the white dude spoke, half a dozen female immigrant garment workers wearing the same "Support Our Troops" tees worked their asses off to crank out more shirts. Many who later donned those shirts would have just as soon rounded those ladies up for deportation. God bless America!

FRANKIE GOES TO ANAHEIM Major League Baseball teams pay their players for service during the regular season, but when it comes to the playoffs and World Series, the ultimate winning team gets a big pot of cash, the losers get less in descending order, and the players divvy it all up. For instance, the Anaheim Angels decided their rookie phenom pitcher Francisco Rodriguez should get $5,000. While that’s not exactly chump change in Rodriguez’s native Venezuela, where the average annual income is $4,310 (U.S.), Frankie’s on-field contributions were certainly every bit as important as the 42 teammates who got full $272,000 shares. For those who were holed up in La Cave during the Halos’ incredible championship run, then-20-year-old Rodriguez’s strong arm, ice-cold demeanor and timely strikeouts were huge in dispatching the Minnesota Twins, New York Yankees and San Francisco Giants. While division of the postseason booty was decided before play began, at a time when Frankie was an unknown quantity, it still had the effect of giving another young immigrant Latino in Orange County shit wages for the really hard work.

FROM THE FILES OF POLICE SQUAD •A woman told Dana Point cops that an unknown man took the diamond ring off her finger around last call at a Monarch Beach bar on March 2. She figured he made off with it while kissing her hand.

•A man who had slurped raw fish at Sushi Laguna the evening of March 7 suddenly leapt from his seat, darted out the door and ran after a truck towing away his pickup. Laguna Beach Police arrived to find the man arguing with the tow operator, but the matter seemed to be resolved after he paid the driver, got his pickup back and everyone left happy. Uh, not quite: Sushi Laguna called the cops back to say the man never paid his bill.

•A woman walked into a Laguna Beach hospital the afternoon of March 8 to report she had been assaulted by her roommate. Instead of receiving treatment, she was arrested on suspicion of public drunkenness. She’d walked into an animal hospital.

•A man called the Sheriff’s Department on March 9 to complain that a woman was screaming outside his San Clemente home. Deputies arrived to discover a dog and a raccoon had fought to the death. Well, one did; the report doesn’t say which animal died. Probably the one that screams like a girl. Sissy.

COSMIC DEBRIS Members of Holy Splendor Ministries in Long Beach reportedly meditate in prayer circles weekly to save the souls of evil extraterrestrials they believe are poised to destroy Earth. Holy Splendorer Terry Johnson maintains in a March 10 Wireless Flash news service report that the aliens might "work with us instead of against us" if we send them good vibes. But he cautioned the E.T.s aren’t exactly open to Earth religion, something he learned the hard way during numerous abductions. Sounds like someone’s a pair of Nikes and killer cocktail away from those yahoos who caught a ride on a passing comet a few years back.

www.upi.com By David Hale Special to UPI From the Business & Economics Desk Published 3/20/2003 6:12 PM

CHICAGO, March 20 (UPI) -- There is little doubt that America's war with Iraq will be the dominant event shaping the world economy and financial markets during the next few weeks and months.

A country with a gross domestic product about the size of that of Louisiana has brought the world to a standstill. The paralysis won't be resolved until there's a military conflict that produces a regime change.

Even before the conflict actually began, the prospect of war had several economic consequences. Oil prices, for example, had risen to about $40 per barrel -- the highest in several years.

This oil price shock raised business costs and depressed consumer income when the economy was already burdened by corporate caution about investment and a stock market decline equal to 90 percent of U.S. gross domestic product.

There's no precise way to quantify the impact of risk aversion linked to war on economic performance, but the contrast between employment in the United States and Canada during February is very revealing.

The U.S. economy lost more than 300,000 jobs; Canada gained 55,000 jobs. American business has been very cautious during recent months because of concern about the war and the lagged impact of the Sarbanes/Oxley legislation on management perceptions of personal liability risk in the event that they make a serious mistake.

The Sarbanes/Oxley legislation and the war risk will probably delay any upturn in capital spending until companies have far more confidence in the medium-term economic outlook. Canadian companies, by contrast, are more confident because their country didn't suffer from major corporate scandals last year -- and it won't join in the war.

All the major recessions since 1974-75 have been preceded by oil price shocks. At the time of the first oil shock in 1973-74, energy consumption was equal to about 6.2 percent of GDP. During the late 1970s, it rose to 7 percent to 8 percent of GDP and then spiked to nearly 11 percent after the oil price shocks of 1979-1980 (the Iranian revolution).

The energy consumption share of GDP plummeted during the 1980s back to 6 percent to 7 percent of GDP and troughed at 5 percent during 1998-1999, when oil prices fell to $10 per barrel.

The recent oil price shock will probably push the energy consumption share of GDP back to 7 percent of GDP this spring and summer. The result will be to reduce the economy's potential growth rate by nearly 1 percentage point of GDP if everything else is equal.

The United States imports about 3.4 billion barrels of oil per year, so the increase in the merchandise trade deficit will be about $65 billion -- or a sum equal to 0.6 percent of GDP.

The prospect of war with Iraq wasn't the only factor pushing up oil prices. The markets have been so tight during recent months that the recent strikes in Venezuela also had a major impact on prices. Three months ago, it was widely perceived that OPEC had about 7.1 billion barrels of spare productive capacity.

As a result of the Venezuelan strikes and production hikes that have already occurred to compensate for Iraqi output losses, the level of spare capacity is now only about 2.1 million barrels. As a result, markets will be very apprehensive until they see the progress of American military forces in the coming battle.

If Iraq was able to hit Kuwaiti or Saudi oil production centers with Scud missiles, the price of oil could easily shoot up to $50 to $60 per barrel.

In recent congressional testimony, Fed Chairman Alan Greenspan said geopolitical uncertainties were a major cause of the recent economic weakness. But the economy has performed better than it did during the run-up to the Gulf War in 1990-91.

At that time, retail sales fell for four consecutive months (from October 1990 through January 1991) before rebounding 0.5 percent in February and 1.1 percent in March 1991. Durable goods orders also fell during those months before rebounding sharply during February and March 1991.

If that pattern is repeated, the economy would probably rebound to a growth rate of 3 percent to 4 percent in the second quarter of 2003 after expanding at an annual rate of only 1 percent to 2 percent during the current quarter.

The recovery from the first Gulf War proved very disappointing despite the U.S. military victory because of a banking crisis. As a result of speculative real estate lending during the 1980s, there was a surge of American bank failures, which caused a wave of regulatory intervention followed by a severe credit crunch.

The Fed slashed interest rates to 3 percent to revive lending but its policy failed.

The first Bush administration also worsened the situation by agreeing to a tax hike at a time when monetary policy was impotent. During the past two years, there have been only 11 bank failures compared with nearly 500 during 1989-1991 -- but the economy is still suffering from an overhang of debt and depressed equity prices, which could constrain private spending after the war ends.

Greenspan says the economy will recover without any additional stimulus, but the fact is the economy has already lost momentum during recent months despite extraordinary monetary and fiscal stimulus since the terrorist attacks of Sept. 11.

In the first quarter of 1991, the U.S. economy benefited from the fact that everyone perceived America had won a decisive victory. The war also ended when Iraqi forces fled from Kuwait.

The United States didn't prolong the war by attacking Baghdad. The clarity of the outcome had an immediately beneficial impact on oil and equity prices and consumer confidence.

It is far from clear that this war will produce as decisive and clear an outcome.

First, the U.S. goal this time is to encourage regime change through a military occupation of Iraq. As a result, the fighting could be more prolonged than during 1991.

The United States is likely to win a decisive military victory over the Iraqi armed forces in the first week of combat but there could be insurgent actions against U.S. forces for months after the occupation.

Second, there is a risk that Islamic extremists could respond to the U.S. attack by launching a terrorist assault on the United States itself or American interests abroad (embassies, military bases, etc.).

In 1991, there had not yet been any Arab terrorist attacks on the United States itself. If there is a significant terrorist event in this country, it could delay any recovery in consumer and business confidence.

Third, the U.S. led a broad global coalition against Iraq in the 1991 war. This time, it faces tremendous opposition from traditional European allies, such as Germany and France, as well as many developing countries. There have also been large anti-war demonstrations in Europe, Australia, Mexico and elsewhere.

The United States believes it can justify acting unilaterally if it wins a quick victory and moves to establish a prosperous democratic Iraq. But it is unclear what the consequences will be of disrupting the Western alliance and undermining the authority of the United Nations.

Will Germany and France be less co-operative on economic and other security issues? Will Germany and France slow down the process of European integration to punish the eastern European countries that supported America? Will Germany and France exclude Britain from all important European policy decisions because Prime Minister Tony Blair supported the Americans?

Will Blair lose political support because of the war? Will the United Nations be less able to play an effective role in defusing other crises, such as the new one in North Korea?

The markets are concerned about American unilateralism because they perceive it as opening the door to a new age of imperialism that could have significant economic consequences. After a great peace dividend following the end of the Cold War, U.S. defense spending is now increasing dramatically.

The surge in the defense budget will magnify the federal budget deficit and raise the risk of the current-account deficit widening further.

During the Cold War, American allies often helped to shoulder the burden of U.S. military spending. During the 1960s, Germany had a formal offset program in which it engaged in financial transactions, such as stockpiling dollars at the Bundesbank, to offset the cost of U.S. defense spending.

During the late 1980s, the Japanese engaged in massive currency intervention to stabilize the dollar because of concern about the falling dollar jeopardizing American financial stability. During the Gulf War of 1991, the United States received huge subsidies from Japan, the Gulf States and Saudi Arabia to pay for the cost of evicting Saddam from Kuwait.

America actually appointed an ambassador for burden-sharing to obtain financial support for the war.

The United States will get no subsidies to pay for this war. If the occupation meets great resistance and proves to be expensive, the United States will also have to assume all of the costs. The markets would regard such a development as negative because of the potential consequences for the budget deficit and the current account deficit.

Congress would probably respond to a high-cost war by vetoing the Bush tax cut proposals, which were designed to bolster the equity market.

Asian central banks have spent large sums defending the dollar during the past year purely for economic reasons; they don't want dollar depreciation to undermine their trade competitiveness.

Such support operations could continue to with or without a benign outcome to the Iraq war. But there is little doubt that private selling of dollars could intensify if investors thought that the United States was accepting a major new financial burden when its current account deficit is already 5 percent of GDP.

Many Europeans believe that America wants to conquer Iraq to control the country's oil wealth. It is far from clear that Iraqi oil will compensate for the cost of the war. While the country has large untapped reserves, its production is only about 2.5 million barrels per year. That's worth only about $25 billion or about one-quarter of the projected cost of the war.

If Iraq were to boost output significantly, there would probably also have to be at least $20 billion to $25 billion of new investment in infrastructure and petroleum development.

The United States has played an imperial role in the past. Aside from Germany and Japan after 1945, it has engaged in military occupations of Nicaragua, Haiti, Panama, the Dominican Republic, the Philippines, Cuba, Mexico, South Korea and South Vietnam.

At the end of the 19th century, many Americans believed the country had a manifest destiny to play an imperial role promoting Christian values and democracy. But as a result of its own anti-colonial history, the United States was never fully comfortable with the idea of imperialism. Its institutions are also poorly equipped to preside over a colonial empire.

Until 2003, the international affairs budget of the government had been in decline for many years. The CIA has not been able to recruit the best and the brightest from the country's elite Ivy League universities for nearly two generations. It depends heavily upon former Mormon missionaries because they are the only Americans prepared to learn exotic foreign languages. The Congress has become highly isolationist and protectionist since the end of the Cold War.

Many of the world's current problems resulted from Franklin Roosevelt's decision to promote the liquidation of the British Empire after World War II. If the Americans had supported the British rather than promoting the end of the empire, there would be no conflict now between Palestinians and Israelis, no threat of war between India and Pakistan and no need to attack Iraq.

The African continent would also not be suffering from brutal and incompetent dictatorships presiding over starvation and uncontrolled epidemics of AIDS. The consequences of Roosevelt's foreign policy have been catastrophic for hundreds of millions of people in the Third World as well as for America's own security position.

The United States is about to go to war because of a balance of power vacuum in the Middle East created by the withdrawal of the British nearly half a century ago. The British understand the consequences of this vacuum more clearly than the Germans and the French, so they are prepared to help the Americans. But it was the United States that deliberately created the vacuum in the first place as a result of a naive anti-colonialism that spawned some of the most brutal dictatorships in human history.

Despite enthusiasm for war among Washington neo-conservatives, it is unclear if America is truly prepared to accept an imperial role on a sustained basis. The United States accepted the cost of the Cold War because the Soviet Union was clearly a threat to the security and freedom of the American people. The same cannot be said of Iraq, North Korea, and other rogue states in the Third World.

Such regimes are a clear threat to their own people and other states in their region. But they don't directly threaten America's own territory and security. The events of Sept. 11 are being used to justify to pre-emptive foreign policy and the American people appear willing to accept the administration's decision to use military force without the other side attacking first.

But as a result of the 1991 war, Americans also expect a quick and decisive military victory. It is unclear if they comprehend all the costs and consequences of a prolonged military occupation.

The deployment of military power is, by definition, a high-risk event. As the Challenger demonstrated, there can be mistakes with technology that disrupt the best-laid plans of generals and presidents.

There is little doubt that the United States will conquer Iraq and drive Saddam from power. But the decision to act unilaterally has set in motion political shock waves that won't fully comprehensible for some time. The markets will rally on positive news about the military conflict. But the sustainability of the rally will hinge upon how America reconciles its new imperial ambitions with the realities of large fiscal deficits and unprecedented current account deficits.

The cost of the war has clearly put Bush's fiscal strategy at risk. What remains to be seen is what additional sacrifices America will have to make to support its new imperial responsibilities.

-0- David Hale, former global chief economist for Zurich Financial Services, is President of the Chicago-based economic consultancy Hale Advisers LLC.

www.planetark.org USA: March 21, 2003

WASHINGTON - Amid heightened tensions in the Middle East, Venezuela is quietly launching a campaign to rebuild its shattered prestige as a reliable supplier of oil to the United States.

The effort will be spearheaded by an energy task force that will operate from the Venezuelan embassy in Washington. Its mission is to maintain regular contact with top Bush administration energy officials and key members of Congress and the oil industry. "We have put forth a plan of action over the next two or three months," Ambassador Bernardo Alvarez told Reuters in an interview late on Tuesday. "And we are going to contact all levels of American society.

"We have seen the need to deepen the strategic relationship between the United States and Venezuela."

The effort reflects a new approach to bilateral relations by Hugo Chavez, Venezuela's controversial president and a fiery populist who in the past has repeatedly clashed with Washington on issues that range from free trade to Cuba.

Traditionally, energy ties between the two countries have been tight.

Venezuela supplied more than 13 percent of U.S. oil imports until a two-month strike at state-run oil giant PDVSA ground shipments to a halt in December and January. Venezuela is also a key supplier of refined products as tough U.S. environmental laws discourage building new plants.

Many think Chavez' energy overtures will be well received in the Bush administration, given U.S. preparations for war against Iraq and the potential for disruptions in oil shipments from the Middle East.

"Clearly Venezuelan oil is very important to the United States and clearly an effort by Chavez to satisfy the U.S. on this front is a positive sign and will be taken that way," said Peter Hakim of the Inter-American Dialogue, a Washington think tank.

OIL TASK FORCE

Senior officials from both PDVSA and Citgo, PDVSA's U.S. gasoline retailer, will be permanently based in Washington to staff the new task force, as will specialists from Venezuela's ministry of energy and mines, Alvarez said.

"Three institutions are taking part, and the embassy here will coordinate everything," he said.

A similar task force existed until 2001, but it broke up as relations between the two nations deteriorated.

But as PDVSA gets its crude production back up to pre-strike levels, the task force will face the crucial task of convincing the United States that Venezuela means business.

Venezuela is also dispatching PDVSA's production and refining chiefs to Washington to explain Chavez' plans for the company.

The government earlier this year sacked 16,000 workers who took part in the strike and wants to downsize the company to make it more efficient. The opposition accuses Chavez of carrying out a witch hunt against opponents in the oil firm.

The task force will also tout what Ambassador Alvarez calls "the need for a more profound strategic alliance between Venezuela and the United States."

Venezuela wants U.S. firms to invest more to expand refining capacity in Venezuela to make up for an expected five million barrel-per-day refining shortfall in the United States in five years, the diplomat said. Likewise, the United States will need 38 trillion cubic feet of natural gas by 2015, up from 23 trillion now, and Venezuela has enough reserves to fill the gap, provided U.S. firms are willing to develop in natural gas fields there.

OIL AS STATE POLICY

Venezuelan officials will fan out in roadshows to carry the message to New York, Dallas, Houston and other energy centers in the United States.

Above all, they will try to convince U.S. officials that oil is a matter of "state policy" and not "an instrument to be used by the right or the left," Alvarez said.

Story by Pablo Bachelet