www.pantagraph.com Friday, March 21, 2003
By Chris Anderson Pantagraph staff

BLOOMINGTON -- Local consumers should see little impact after the start of war -- gas prices are stable and food prices are not expected to rise.

David Sykuta, director of the Illinois Petroleum Council, promised drivers fuel at reasonable prices as long as consumers don't start panic-buying.

"Drivers don't need to panic" because of the war, said Sykuta. "We get very little crude oil from the Middle East. Most of it comes from Canada, Mexico, Venezuela, Saudi Arabia and Nigeria. And our strategic oil reserve is filled to the tip-top."

Central Illinois grocers said the war should have no effect on food prices, making hoarding unnecessary. Most food consumed in the United States, except some fruits and vegetables, gets produced and processed in America.

"The short-run impact -- if the war goes as planned -- will be minimal on food prices," said Rick Whitacre, Illinois State University agricultural economist. "If the stock market continues to strengthen and oil prices continue going down, it should restore consumer confidence. If you're not paying $2 per gallon to fill up your SUV, maybe you can go to Jim's Steak House for dinner."

Gasoline prices in the Twin Cities Thursday stayed stable at around $1.60 per gallon. Sykuta, driving from Springfield to Chicago, found prices steady to 1 cent lower.

He noted crude oil prices have dropped recently because of anticipation of a short conflict in Iraq. Prices recently fell to about $25 per barrel after hitting $32.49 in December.

Sykuta said, "Fear and rumors are powerful forces. I think owners of all 5,000 service stations in Illinois will be restrained. I'm optimistic it will stay under control."

Whitacre noted farmers facing spring planting duties also could benefit from lower petroleum prices. A drop in diesel prices from $2 per gallon to $1.30 or $1.40 per gallon could result in substantial savings, he said. Lower petroleum-based fertilizer prices also would save farmers money, he said.

The war's impact on grain prices remains less certain. Brian Basting, an economist with Advance Trading Inc. in Bloomington, expects some initial market hesitation while traders determine exactly what's happening.

Grain markets reflected that situation. Traders described Wednesday's trading as "war-subdued" with corn futures prices up about 1 cent per bushel and soybeans down about 3 cents. Thursday's futures prices ended with corn 2 \ cents higher and soybeans 4 cents higher. Solid weekly exports, not the war, fueled the increase.

"Spring weather and acreage reports will be a much more important impact on grain prices as long as the war doesn't interfere with international commerce," said Whitacre.

Pete Manhart, owner of Bates Commodities Inc. in Normal, noted the U.S. doesn't trade grain with Iraq. Egypt, however, buys wheat and other grains from the U.S., a trade route that could become physically disrupted, he said.

Basting and Whitacre said U.S. grain trade could get a significant boost if the war ends quickly. Iraq will need food assistance -- action that would bolster confidence in worldwide grain trade, they said.

www.billingsgazette.com Last modified March 21, 2003 - 12:34 am News in brief Friday, March 21, 2003

South Korea puts military on alert SEOUL, South Korea -- South Korea put its military on heightened alert for any North Korean attempt to raise tension on the Korean Peninsula while the world is distracted by the outbreak of war in Iraq. "We expect North Korea to be cautious, but we have strengthened our alert status and our early warning status in response to possible North Korean attempts to increase tensions," presidential spokeswoman Song Kyoung-hee said. The North said it also was boosting its military readiness, saying it feared a U.S. attack. "We will strengthen our readiness in every possible way to meet whatever military options the U.S. imperialists will take against us," said Rodong Sinmun, the North's most prominent state newspaper. Tensions on the Korean peninsula have been high since October, when U.S. officials said the North admitted having a program to enrich uranium.

Norwegian police arrest Kurdish leader OSLO, Norway -- Mullah Krekar, the leader of a Kurdish guerrilla group suspected of links to al-Qaida, was arrested by Norwegian police Thursday on kidnapping charges. Police arrested Krekar at his home in Oslo. Spokesman Erling Grimstad said authorities were looking into widening the charges against him but did not elaborate. Krekar was questioned by Norway's intelligence agency last month when the rebel leader admitted to briefly holding nine men in Iraq in December 2001. Police had released Krekar pending further investigation but confiscated his passport to keep him in the country. Norwegian prosecutors can charge suspects for crimes that took place outside the country's borders, even if the suspect is not a Norwegian citizen. Krekar, who commanded the Kurdish Ansar al-Islam group in northern Iraq, has denied the allegations. If convicted he faces up to 10 years in prison.

Venezuelan court frees strike leader CARACAS, Venezuela -- An appeals court on Thursday ordered the release of a businessman who has spent nearly a month under house arrest for leading an unsuccessful strike to oust President Hugo Chavez. The Caracas court ruled that prosecutors have not presented enough evidence to keep Carlos Fernandez in custody on charges of rebellion and instigation, Judge Luis Lecuna told Globovision television. Fernandez, 52, was arrested by secret police on Feb. 20. He was placed under house arrest three days later in the central city of Valencia, about 70 miles from Caracas. Fernandez helped organize a two-month strike to demand Chavez's resignation or early elections. The strike paralyzed the world's fifth-largest oil exporting industry and cost Venezuela $6 billion. But it fizzled last month with Chavez firmly in power. Chavez's opponents -- labor leaders, the business community, and much of the local news media -- accuse him of grabbing too much power in his self-described "revolution" to help Venezuela's many poor. Chavez counters the opposition is trying to overthrow a democratically elected leader and restore power to two corrupt traditional parties.

Tribunal dismisses 'dirty war' charges MEXICO CITY -- A military court dismissed most of the homicide charges against two generals during their alleged activities in Mexico's so-called "dirty war" in the 1970s, a newspaper said Thursday. The Supreme Military Court reduced the number of charges against Gen. Francisco Quiros and Gen. Arturo Acosta from 143 to 22, Reforma newspaper reported. It was unclear why the charges were thrown out. The two are accused of ordering the killings during a government campaign against leftist activists in the 1960s, '70s and '80s. A government investigation found evidence of least 275 disappearances nationwide in the campaign.

Copyright © 2003 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

www.thisdayonline.com By Mike Oduniyi with Agency report

The Organisation of Petro-leum Exporting Countries (OPEC) has announced the suspension of its production quota to make up for any shortfall arising from the bombardment of Iraq by US forces. The decision, announced by OPEC President Abdullah al-Attiyah within an hour of the US air strikes on Iraq, meant member-nations, including Nigeria, would now produce oil as much as their capacity could carry. OPEC, which controls more than 40 percent of the world's crude supply, operates the quota system as a control mechanism to ensure market stability. Al-Attiyah said in a statement that the decision to suspend production quotas was aimed at maintaining world oil supplies and prices in the event of the disruption to Iraqi crude exports (put at some two million barrels a day) during the US.-led invasion. "Members have pledged to use...their available excess capacities to ensure continued supply," the statement said. Consequently, while the war on Iraq lasts, Nigeria, OPEC's sixth largest producer, could be pushing out at least 2.6 million barrels per day (bpd) of crude, compared to its official output quota of 2.018 million bpd for this year. This represents additional oil output of 582,000 bpd available for Nigeria, and a substantial boost for the 2003 Federal Government budget. The international market was quick to react to the OPEC decision, as oil prices fell nine percent yesterday to their lowest levels in three months. The market's benchmark crude, the British Brent, which was traded as high as $34.55 per barrel last week, fell to as low as $25.50 per barrel yesterday. OPEC's own crude basket also lost about $6 a barrel, from $33 per barrel to $27.12 per barrel. Petroleum product prices also dropped in the international market, as a metric tonne of premium motor spirit (or petrol) fell to $247.75 from $360 per metric tonne last week. This would come as a respite to the Nigerian National Petroleum Corporation (NNPC), whose fuel import programme had suffered a jolt following the sharp increase in the prices of refined oil, and the consequent scarcity of products in the country. Analysts said oil prices had not risen as earlier feared on grounds that there would be plenty of oil in supply, as OPEC member-countries would readily put their suppressed spare capacity to full use. "OPEC producers other than Iraq and strife-torn Venezuela have been increasing production for weeks. Much of that oil is now in storage or in tankers on the high seas," said one oil analyst. Saudi Arabia on the other hand, is believed to have as much as 50 million barrels in storage in the country and more en-route to other storage facilities. "That's enough to replace Iraq's 1.5 million to 2 million barrels a day for about a month." Others said the markets remained calmed because the Bush administration had made clear that it was ready to use some of the 600 million barrels in the Strategic Petroleum Reserve to counter shortages. Energy experts said a glut could result if war in Iraq did not drag on and Iraqi leader Saddam Hussein did not torch his oil fields. The biggest fear in the market however, was that oil facilities in other Middle Eastern countries, such as Kuwait or Saudi Arabia, could be attacked. a scenario that would cause oil prices to shoot higher very quickly. Another concern was the on going communal clashes in Nigeria's oil-producing town of Warri, Delta State, which it was feared, might make Nigeria unable to produce at full capacity. The violent clashes between the Itsekiri and the Ijaw communities, which had left dozens dead, resulted in the loss of a total 156,000 bpd of oil output, six percent of Nigeria's production capacity. This followed the closure of 10 oil flowstations belonging to Shell (resulting in production shut in of 126,000 bpd) while ChevronTexaco shut three of its swamp flowstations, losing 30,000 bpd of oil.

dallas.bizjournals.com 11:00 PM CST Thursday  William Hoffman   Staff Writer

Texas oil and gas companies are well-positioned to benefit from the rebuilding of Iraq's multibillion-dollar oil industry, experts say

GREATER METROPLEX — The Texas oil industry will be a big winner of a quick end to the regime of Saddam Hussein, industry observers agree.

"Texas is probably in the best position of any area, probably in the world, that can benefit from this," said Mark Baxter, director of the Maguire Energy Institute of the Cox School of Business at Southern Methodist University in Dallas.

John Gerdes, senior vice president and director of energy research at Dallas-based Southwest Securities Inc., said Texas oil and gas companies are already lining up for hundreds of millions of dollars in contracts to put out Iraqi oil well fires and rebuild the country's oil industry.

Baxter said he tried to arrange a visit to Iraq about three weeks ago with a group from Dallas and, "even with my contacts, 'mum' was the word of the day" on contract bids and negotiations.

Baxter said he's read that Houston-based Halliburton, Aliso Viejo, Calif.-based Fluor Corp. and San Francisco-based Bechtel Group Inc. have been asked by the U.S. government to bid on reconstruction of Iraq's oil industry.

He suspects that non-disclosure agreements contractors signed with the government and uncertainty over the scale of work — war damage could be near zero or near total — helps keep speculation about business deals to a minimum.

It's safe to say, however, that reconstruction of Iraq's oil industry will be a massive undertaking.

Iraq is home to the world's second-largest proven oil reserves, with 112.5 billion barrels, Baxter noted. Saudi Arabia ranks first with 261.7 billion barrels.

The job will require billions of dollars in capital and technology, not only to repair war damage but to modernize an industry barred from new technologies for a generation.

Baxter said that while other countries can provide some capital, U.S. companies hold important licenses on technologies needed to modernize Iraq's oil industry.

A March 18 New York Times article said the Bush administration planned to let the lion's share of reconstruction contracts to American corporations, with foreign companies participating only as subcontractors.

Baxter doubted that was possible. "It's so big, I can't sit here and tell you that American companies can fully develop (Iraq's oil industry) the way it needs to be developed," he said. "It's going to take a lot of players."

Baxter and Gerdes both noted that a post-Saddam Hussein Iraq would likely end its state monopoly on the oil industry and begin granting concessions to foreign operators for a more direct and profitable role in the business.

While behind-the-scenes activity may be intense, Metroplex oil and gas companies seem to be putting a business-as-usual face on their response to the crisis.

"We're always producing all-out," said Exxon Mobil Corp. spokesman Tom Cirigliano in Irving, "so there isn't much of a need for making adjustments there."

He said the company takes no position on the Iraq situation, but has beefed up security to deal with potential terrorist activity.

Exxon Mobil is active in oil and gas development in practically every country in the world, according to Baxter.

Cirigliano said Exxon Mobil is confident it can meet customer demand for its gasoline, oil and petrochemical products during the crisis.

Governments in the Persian Gulf have pledged to keep shipping lanes clear, he noted, and Saudi Arabia has said it can ship product by way of the Red Sea if necessary.

Dallas-based Hunt Oil Co.'s Jim Oberwetter, vice president for public affairs, acknowledged the company had suspended drilling in Yemen after a March 18 shooting aboard a drilling rig there killed a Hunt supervisor.

However, Oberwetter added, "production from Yemen continues in an uninterrupted manner. It is performing normally. We are producing as we have in the past."

Drilling operations will resume in the near future, he said.

Oberwetter declined to discuss Hunt Oil security, personnel movements or the company's future in Iraq.

In the pipeline

Halliburton, which employs 1,500 people in the Metroplex, including 1,100 at an oil-field products facility in Carrollton, was also mum on its participation in post-war Iraq.

The Times' March 18 article reported Halliburton subsidiary Kellogg Brown & Root had been asked to bid on contracts. Halliburton spokeswoman Wendy Hall, in Houston, directed contract inquiries to the U.S. Agency for International Development in Washington, D.C.

Ellen Yount, press director at U.S. AID, said no contracts had yet been awarded to Metroplex-area companies for reconstruction in Iraq.

Phillip Feiner, general counsel at BDS International L.L.C. in Dallas, said since the natural-gas drilling and exploration company had most of its assets in Colorado, and none outside the United States, it expected no direct impact from a war.

Nevertheless, Feiner said BDS has increased security in response to the crisis. "We want to see as minimal impact from a potential war as possible," he said, "because we all suffer as a society."

Gerdes said, "There's not much these companies can do," to manage the impact of the Iraq crisis on their businesses.

Iraq is a significant contributor to the rising price of crude, he said, but an oil strike in Venezuela, frigid winter weather and the industry's low excess production capacity to deal with demand spikes all help create a bullish oil market.

Gerdes said he expected oil prices to surge at the start of hostilities. But if the conflict ends quickly, he said, crude could drop from its March 19 price of $29.88 to $29 a barrel in the second quarter, before settling at an average $26 a barrel by the third quarter.

Baxter estimated Iraq would be able to deliver 3 million to 4 million barrels of oil a day to world markets if war damage to the industry is light. Current production is about 2.8 million barrels a day, he said.

Gerdes estimated the recovered industry could generate $10 billion to $20 billion a year for a new government.

"We are not going to war to pilfer the resources of a sovereign nation," Baxter said. "That's not in the cards. I don't even think that can happen. ... I still like to believe we're the good guys in this."

Contact DBJ writer William Hoffman at bhoffman@bizjournals.com or (214) 706-7123.

www.jamaicaobserver.comc DAVID PAULIN, Observer writer Friday, March 21, 2003

SHAW... why should we pounce on the war and use it as an excuse

FOOD shortages. Rising prices. A devastated tourism industry. Prime Minister PJ Patterson has warned that Jamaica could suffer all of these calamities as a result of a US-led war on Iraq, which he deeply opposes.

But the Jamaica Labour Party's spokesman on finance, Audley Shaw, says Patterson is playing politics with the war, and he said he is calling the prime minister bluff.

"We are not going to allow (the PNP) to use the war as a scapegoat for all the ills of the economy and mismanagement of the economy," said Shaw, who made the same point in Parliament on Tuesday.

The prime minister's warnings followed President George W Bush's 48-hour ultimatum to Iraqi President Saddam Hussein to get out of Iraq or face war.

"The heightened sense of alert, tension and uncertainty that accompanies war would erode confidence in the economy and wipe out anticipated gains from investment," said Patterson.

"Why should we pounce on the war and use it as an excuse for necessary and credible actions on the part of the Government to present a credible budget in April?" asked Shaw.

Patterson's remarks came as oil prices had plunged below the $30 mark -- their lowest in three months -- following Bush's ultimatum.

Zia Mian, an energy advisor in the Ministry of Mining and Energy, said oil supplies are in fact plentiful, and that politically troubled Venezuela had nearly ramped up production to the levels it had pumped at before a crippling oil workers strike. In recent months, Mian explained, uncertainty over Iraq had pushed up prices due to "speculative pressures" that it faced with the start of war.

After Bush's ultimatum, prices dropped $3 per barrel, he noted.

Meanwhile, Beverley Lopez, president of the Private Sector Organisation of Jamaica, said the island's business leaders "have assured us that they do not see any shortages of food stuffs because we do not do any importation from that side of the world".

She added: "The threat of war was having a worse impact than the war itself. A lot of people think a war will be short."

Both Shaw and Lopez said it remains to be seen how hard tourism will be affected by the war.

"So far, in our discussions with the Chamber of Commerce and Hotel and Tourism Association, we gather that the booking are still holding," Lopez said. "They have not had any rush for cancellations up to Wednesday."

Even if tourism does take a hit, Shaw said: "If you know what you are doing and target tourism and invest in a very specialised way, you might find that you are able to snatch victory from defeat."

Patterson is facing a bulging deficit that will close this fiscal year at about eight per cent of gross domestic product (GDP). The finance minister, Omar Davies, has pledged to swipe two percentage points in the coming fiscal year, and that will mean a combination of spending cuts, higher taxes, and more taxes.