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With the prospect of a big hike in its oil bill, India has a stake in OPEC acting responsibly

One way of tracking the coalition force’s progress in the current Gulf war is by observing the gyrations in crude oil prices. Within hours of US President George W. Bush’s 48-hour ultimatum to the Iraqi regime, the global oil market responded with a 10 per cent drop in the $35-plus per barrel price that had been ruling for months.

Of course, the oil sector strike in Venezuela and falling US inventories had also contributed towards a tighter market, but most of the price hike was due to the uncertainty of whether there would be a war or not.

Once the war began, crude prices plunged by almost 25 per cent on the belief that it would be swift and painless—for the Americans. But now that the Iraqi troops have proved to be more resilient than expected and the verdict is that the conflict will be more drawn out than hoped for at first, oil prices have begun nudging up once again to approach the $30 per barrel mark, aided and abetted to some extent by the upheaval in the Nigerian oil sector.

And if the war indeed goes beyond a month and the damage to the allied troops more extensive than anticipated, the pre-war concerns of prices hitting the upper forties or even fifties per barrel may yet be borne out.

With the news of Iraqi oil being set ablaze by their troops, the major oil importing countries, who had begun to breathe a little easier once prices began dipping, are back to calculating the impact of high oil import bills on their economies. Though the eventual outcome of the war is not in any doubt, the duration and intensity of the conflict will have a bearing on the market.

If Iraq’s oil sector, affected by a decade of sanctions, suffers further damage, it will take years of rebuilding, even on a war footing, before it can be brought back to its pre-1991 levels of production.

Despite reassurances of uninterrupted supplies by the Organisation of Petroleum Exporting Countries (OPEC) and its promise of making good any loss in Iraqi crude output, there are continued reservations about the cartel’s ability—and intention—to pump additional oil indefinitely to cool the market, given the cartel’s propensity to manipulate production to keep prices high.

Part of Washington’s interest in Iraqi oil is the wish to see OPEC’s wings clipped. With the prospect of a 20 per cent hike in its oil import bill from last fiscal’s Rs 67,000 crore, and every $1 per barrel adding a further Rs 3,000 crore, it would be in India’s interest if the cartel could be made to act more responsibly. One way of doing this is to ensure that a post-war Iraq is kept out of OPEC and its 112 billion barrels of reserves made available to usher in an era of cheap oil.

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Web | Mar 28, 2003

The history of the rise and fall of Empires teaches us that it is when their own citizens finally lose faith in the efficacy of infinite wars and permanent occupations that the beast implodes. TARIQ ALI The historic significance of the protests against the war in Iraq is that they have been unprecedented in size, scope or scale. This is the first truly global response to a political event: millions have come out on the streets of Western Europe, North and South America, Western Europe, the Far East, Australia and New Zealand and last week, the Arab street exploded with the largest spontaneous demonstration Cairo had seen since Nasser’s funeral.

What will be the effect of the war now raging in Iraq on the peace movement? Its fair-weather friends (symbolised in Britain by the pathetic and spineless figure of the Liberal leader Charles Kennedy) will naturally drop out, but the movement itself will grow in strength and determination. The US occupation of Iraq will necessitate a change in tactics, but the overall strategy of the global peace movement will not alter.

It is now obvious to a large majority of the world’s population that the real threat to peace and stability comes not from the depleted armouries of decaying dictatorships, but from the rotten heart of the American Empire or its regional satrapies (Israel, Britain). It is this new awareness of world realities that has radicalised a new generation across the globe. Those who accept the official justifications for the conflict simply cannot understand the resistance to this war. It has nothing to do with support for Saddam, but reflects a refusal to believe the untruths being spouted by Bush, Rumsfeld and Blair and their apologists in the media. Apart from the United States, few citizens elsewhere believe that the fiercely secular Ba’ath Party of Iraq has any links with Osama’s gang. As for ‘weapons of mass destruction’ the only nuclear stockpile in the region is situated in Israel. And even if Saddam Hussein had the capacity to acquire these weapons, an imperial princess had already pointed out that it would be a futile act.

In the January/February 2000 issue of Foreign Affairs, for example, National Security Advisor Condoleeza Rice wrote: "The first line of defense should be a clear and classical statement of deterrence : if they do acquire WMD, their weapons will be unusable because any attempt to use them will bring national obliteration."

Unusable in 2000, but now Saddam must be removed by bombing Iraqi cities and a land invasion before he gets them? Like many of the other pretexts for this war it doesn’t add up, thus fuelling a broad-based opposition.

What appears to have happened is that a Christian-Jacobin faction from the extreme-right of the Republican Party (backed by hard-core Zionists) has utilised 9/11 to capture the White House, the Pentagon and the Department of Justice. Their aim is the pursuit of a bold and audacious imperialist agenda of which the occupation of Iraq is seen as the first step. Iran and the Korean Peninsula are the next targets.

Its spokespeople, compared to the flatulent rhetoric of their New Labour toadies, are refreshingly honest: in order to preserve US hegemony they will use force wherever and whenever necessary.

European hand wringing leaves them unmoved. If the United Nations can’t be used as an instrument of US power it should be dumped without too much delay. And, one could argue from the other side, if the UN is genetically incapable of preventing pre-emptive strikes by imperial rogue states that openly violate its charter (leave alone ratifying the occupation of Iraq and becoming an after-sales service for the Empire) then it is time to think of other more effective arrangements. The creation or strengthening of existing regional associations of nation states would be an obvious next step. Recently, the Organisation of American States isolated the US and refused to endorse any attempts to topple Hugo Chavez in Venezuela (another oil-rich state considering moving from the dollar to the Euro).

The antiwar movement was given a tremendous boost by the French-German decision not to back the war. This is the first occasion on which a disagreement between the inner core of the EU and the United States exploded into a public rift and helped polarise public opinion both in Europe and North America. Add to that the Turkish parliament (unlike the House of Commons) disrupted the war effort and the Canadian Prime Minister used strong language to denounce the conflict. The opposition of these states is limited (only Belgium refused to permit the use of its air space), but that it exists at all marks a turning point in European-US relations. If the US continues on this course then the EU will have to re-open a public discussion regarding its future. A fierce private debate is already taking place in France and Germany. The ramifications of the assault on Iraq will have global consequences and a resistance to the Empire is inevitable. Its timing is the only point of dispute. Where will this take the peace movement?

The model of what needs to be done by today’s dissenters was established in the last year of the 19th century. Mark Twain, shocked by the chauvinist reaction to the Boxer Rebellion in China and the US occupation of the Philippines, sounded the tocsin. The problem, he argued, was imperialism. It had to be opposed. His call led to a mammoth assembly in Chicago in 1889, which founded the American Anti-Imperialist League. Within two years its membership had grown to over half a million and it attracted some of the most gifted writers and thinkers of the United States (Henry James, Charles Elliot Norton, W.E.B. Dubois, William Dean Howells, Frederic Douglass, Jr, etc.)

Today, when the United States is the only imperial power, the importance of a global Anti-Imperialist League cannot be understated, but it is the US component of such an organisation that will be crucial. The resistance can only be political. The history of the rise and fall of Empires teaches us that it is when their own citizens finally lose faith in the efficacy of infinite wars and permanent occupations that the beast implodes.

The World Social Forum (which hosts the movement of movements every year) has, till now, concentrated on the power of multinational corporations and neo-liberal institutions. But Friedrich von Hayek, the inspirer of the "Washington Consensus", was a firm believer in wars to buttress the new system. The World Social Forum should think of campaigning against the military presence of the US in 120 countries. Economics is after all only a concentrated form of politics and war a continuation of both by other means.

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Reuters 03.28.03, 5:08 PM ET

CARACAS, Venezuela, March 28 (Reuters) - Breaking a two-month hard currency drought, Venezuela's government on Friday approved the first allocation of dollars for essential imports under strict currency controls which many private firms fear will put them out of business. Leftist President Hugo Chavez's government suspended foreign exchange trading in January and decreed the curbs to halt capital flight and a slide in the bolivar currency triggered by a crippling opposition strike in the world's No. 5 oil exporter. The government set a fixed exchange rate of 1,600 bolivars to the dollar but a 65-day delay in the implementation of the hard currency allocation mechanism had left importers, exporters and individuals clamoring for greenbacks. Edgar Hernandez, head of the state currency control board Cadivi, said on Friday the board had authorized the allocation of $5.29 million covering the first five applications of a list of 60 requests made by companies seeking dollars to import goods. "This is expected to be paid out today," Hernandez, a former military officer and a political ally of Chavez, told a news conference in Caracas. He did not say what products were involved but added other allocations would follow. Oil-rich Venezuela imports around 60 percent of its basic needs and business leaders said the dollar drought threatened many firms with financial ruin. They have also predicted the currency controls will generate corruption, cause shortages of products and stimulate inflation. Hernandez said an additional $30,000 had also been authorized to cover the needs of students studying abroad and other special cases requiring hard currency. Foes of Chavez, including many private business executives who supported the strike in December and January, have accused the populist president of trying to use the currency controls in a political vendetta to starve them of dollars. They say the president, who survived a coup last year, is trying to crush his powerful private business opponents as part of a plan to implant Cuban-style communism in Venezuela. Chavez says the strike, which slashed vital oil output and exports, inflicted serious damage on the oil-reliant Venezuelan economy. He says the controls are needed to protect the country's international reserves and ensure that scarce dollars are used to import essentials like food and medicine. Hernandez said the long delay in the start of the centralized dollar allocations was due to logistical problems. The government has said the curbs will be lifted when oil exports recover momentum and political tensions ease. Before the forex market was closed Jan. 22, the Central Bank had been selling an average of around $60 million a day. Since the controls were introduced, a flourishing black market in dollars has emerged, in which the greenback is being traded at between 2,200 bolivars and 2,300 bolivars. Opponents of Chavez have appealed to the Supreme Court to annul the controls, arguing they were unlawfully introduced without the approval of the National Assembly. The country's top tribunal has still not made a ruling on the appeal.

Read Reuters, 03.28.03, 4:55 PM ET NEW YORK, (Reuters) - Gold prices closed higher on Friday amid uncertainty about how well the war in Iraq was going and after the brief closing of a New York City bridge fanned ever-present jitters about terrorism. Uncertainty about Iraq also kept oil traders nervous but oil ended the day lower on a round of profit-taking after the Organization of Petroleum Exporting Countries indicated there was more than enough oil to cover any shortfalls from Iraq. At the COMEX, gold found support on growing sentiment that the week-old conflict in Iraq will drag on longer than U.S. war planners had expected. New York financial markets also remain jumpy about the threat of reprisal attacks against Americans. The dollar fell to its lowest level against the euro since the start of the war after police closed the Williamsburg Bridge linking Manhattan with Brooklyn for more than two hours on Friday morning, arresting three men. Police later said the men had climbed it in a drunken prank and were not terrorists. But the euro stretched its rally to $1.0801, its highest since March 17, making dollar-denominated gold more affordable to European investors. COMEX April gold closed up $3.10 at $331.50 an ounce. Analyst David Meger at Alaron Trading said the main factors in gold's pop were the dollar "and continued talk that maybe things aren't going quite as well as they planned in Iraq." A soft stock market also drove investors toward gold and other safe havens like the Swiss franc and U.S. Treasuries. The Dow Jones industrial average closed 55 points lower at 8,145. Gold bullion closed at $331.60/2.20, up from $328.40/9.00 at Thursday's New York close. London dealers earlier fixed the afternoon spot reference price at $330.75 an ounce. At the New York Mercantile Exchange, June palladium fell $9.65 to $188.00, setting a new contract low -- and 5-year low -- at $178. Automakers who use palladium to make pollution control devices did only mild bargain-hunting this week. NYMEX oil prices, meanwhile, ended a two-day rally and closed lower as OPEC assurances of ample crude supplies offset worries about production halts in both Iraq and Nigeria. Crude oil for May delivery closed 21 cents lower at $30.16 a barrel after trading between $29.85 to $30.85. The overnight high of $31.05 in screen trading marked a 14-percent rise since Monday and was the highest price since the war began in Iraq. In London, May Brent crude fell 47 cents at $26.35. U.S. Deputy Defense Secretary Paul Wolfowitz said on Friday the U.S. offensive in Iraq was going as planned. But the United States also announced it was sending another 120,000 troops for the fight to depose Iraqi President Saddam Hussein. The conflict has erased Iraq's 1.7 million barrels per day of crude oil exports at a time when 800,000 barrels a day of Nigerian output was also shut down by ethnic clashes there. "The assumption to date has been that Iraq's export disruption would end by the start of the third quarter, which coincides with a significant global increase in the demand for OPEC oil," said oil analyst Michael Rothman of Merrill Lynch. "If Iraq's production outage extends beyond the second quarter period, OPEC would not be able to meet market requirements," Rothman said. However, OPEC Secretary-General Alvaro Silva said in Vienna that there was more than sufficient oil supply in world markets and in fact the cartel was on alert for signs of a glut. "Even with the cessation of Iraqi exports and the temporary oil output reduction in Nigeria, there is still plenty of oil on the market," Silva told reporters. Led by a jump from Saudi Arabia, OPEC output rose by 430,000 barrels a day in March to 28.36 million bpd, Geneva-based energy consultancy Petrologistics said on Friday. Extra oil was added by Kuwait, the United Arab Emirates and Venezuela, where the state oil company restored a large amount of production after a two-month strike. NYMEX May gasoline closed 1.41 cents lower at 94.35 cents a gallon and May heating oil fell 2.03 cents at 75.70 cents. At the Chicago Board of Trade, wheat closed lower as speculators cashed in some profits ahead of U.S. Agriculture Department initial estimates for U.S. plantings due on Monday. Wheat for May delivery closed 4-1/4 cents lower at $2.79-1/4 per bushel. May soybeans closed 1/4 cent lower at $5.80 a bushel and May corn fell one cent at $2.27-3/4. Traders said they expected USDA to predict record corn plantings of about 80.5 million acres, up from 79.1 million last year, with soybean acreage falling to 72.4 million acres from 73.8 last year. Acreage for all forms of wheat was expected to rise to 62.5 million from 60.4 million a year ago.

By Leslie Fong

STOPPING the exodus of capital from America to Europe is the real reason why the United States started the war against Iraq despite worldwide objection, according to a Chinese think-tank chief with access to the leadership in Beijing.

In an analysis said to have been read by President Hu Jintao and other top leaders, Mr Wang Jian argues that the steady flow of money away from the US and into Europe over the past six months has raised the spectre of a financial meltdown in America.

With a financial system sustained largely by incoming funds invested in government bonds and other instruments, the US simply cannot afford to let the exodus continue.

It has to thrash the euro, which has been appreciating against the US dollar, and make Europe a risky place in which to park excess money, he says.

Mr Wang, who heads the government-linked Macroeconomics Society of China, asserts that the US has decided that a war in the Middle East, from which most major European economies except Britain import almost all their oil, would be the most effective way to rattle fund managers.

Iraq, with the second largest oil reserves in the world after Saudi Arabia but few friends even in the Arab world, as good as offered itself as the target.

No doubt higher oil prices will hurt the American economy too, but the impact will be much less severe as the US depends on the Middle East for only 26 per cent of its needs.

Further, he says, it has its own oil fields and holds in reserve enough to meet its needs for 150 days compared with just 90 days for Europe.

In any case, victory in Iraq will mean American control over the country's oil fields, however much the Bush administration may deny that it wants to do that. The US can then tighten the screws on Europe.

Mr Wang's paper has created a stir among the community of researchers and analysts in Beijing, many of whom advise the Chinese government on foreign policy and strategic issues.

It has sparked off deep discussions in such circles, which is hardly surprising as no one believes the reasons given by the US government for going to war.

In contrast, only a few accept that the US is really out to set up a kind of model government in Iraq to show that Islam is not incompatible with modernity as the West defines it - the essence of regime change.

Opinion is divided among those who have read and debated Mr Wang's paper.

Most agree with his argument that war in Iraq, especially a prolonged one that will push oil prices up and up, will hurt Europe and the euro more than the US.

But they see the likely collapse of the euro as a by-product of the war, not the reason for launching it in the first place.

'I think Wang Jian is being deliberately provocative. It was probably his way of drawing attention to some of the economic repercussions of the war,' says Dr Yuan Gangming, Senior Fellow at the Chinese Academy of Social Sciences' Institute of Economics.

Dr Tao Wengcao, deputy director of the academy's Institute of American Studies, thinks the economist is way off the mark.

However, a military analyst, whose writings are tracked by his American counterparts, thinks Mr Wang is closer to the truth than many would give him credit for. 'History will vindicate him,' he says.

At the heart of the economist's argument is the assertion that the US will do everything to defend its 'dollar hegemony' because it is now living off the paper on which it prints its greenback.

With a withering manufacturing sector, whose share of the GDP is down to 18 per cent last year from 24 per cent in the early 1990s, it has been relying on financial transactions for growth.

Weighed down by a trade deficit nearing US$500 billion (S$885 billion) a year, the US needs an inflow of US$1.3 billion a day in foreign funds to help pay the bills for the shoes, clothes and other goods it imports.

To put it bluntly, Mr Wang says, the US is paying for merchandise from China and elsewhere with pieces of paper not backed by gold or anything more solid than faith in the greenback.

These dollars are then re-invested in US Treasury bills, bonds and other 'virtual' assets which are no better than promissory notes or digital signals in a computer.

Given this fragility, once international capital moves out of the US in large enough quantities, America will be staring at a huge financial crisis in the face.

And the money is on the move.

Mr Wang says that between 1996 and 2000, US$2.3 trillion worth of international capital flowed into the US, 70 per cent from a Europe lacking faith in its own euro and mesmerised by the false dawn of the 'new economy' in America.

But with the collapse of the dot.com bubble, the discovery of massive corporate fraud, the Sept 11 disaster and an appreciating euro, the tables are being turned on the US.

Since the fourth quarter of last year, the net inflow of international capital into Europe has been exceeding 15 billion euros each month.

What worries the US even more is that the money stays there, in European long-term bonds and other securities.

Mr Wang says that it has not escaped the Americans that the war in Kosovo spooked fund managers.

Within 10 days of the euro's launch in 1999, it rose 19 per cent against the dollar. But once fighting in Kosovo started two months later, the exchange rate fell to as low as 0.8, a 40 per cent drop from peak to trough.

Noting that Iraq's peace-time oil production amounts to just two million barrels a day and Saudi Arabia alone can put three million a day more onto the market, he says the US can only keep up the pressure on the euro if it also moves against other producers.

He thinks Iran and Libya, known to have been supporting terrorist groups, will be next. But European countries like France and Germany, once alerted to what the US is doing, are bound to respond.

And so may begin a 21st century replay of what the imperialist powers did from the 18th century; only this time, instead of fighting for territory, natural resources and markets, the tussle will be for oil and investible funds.

'I hope my analysis is wrong because if it is not, then the consequences are horrendous,' he says at the end of his paper.

The military analyst has this to say: 'Yes, he is wrong, but only because Iran and Libya are not next - well, not yet.

'Watch Venezuela. Its oil exports were disrupted recently because of strikes and disturbances. Can one be sure there was no American hand behind these?'

• The writer is Editor-at-Large of The Straits Times.