Oil prices push higher by worries over Venezuela, Iraq, leaving global economy with new year hangover.

By Daniel Rook - LONDON Oil prices hit new highs above 30 dollars a barrel Monday on the back of a strike in Venezuela and the prospect of war in Iraq, putting a global economic recovery in early 2003 in jeopardy, analysts warned.

Oil prices marched up to new 15-month highs here in early trading as a strike in Venezuela that has paralysed crude shipments entered a fifth week and a US military build-up continued in the Gulf.

The price of benchmark Brent North Sea crude oil for February delivery rose to 30.68 dollars a barrel from 30.16 at the close of the previous session.

The last time prices were so high was in the immediate aftermath of the September 11, 2001 terrorist attacks in the United States.

In New York, the reference light sweet crude February contract scaled a two-year peak above 32 dollars a barrel on Friday.

"The continued, protracted situation in Venezuela and increased troop movements in the Gulf provided the support for the market," said Commerzbank analyst David Thomas.

"There are ever-increasing concerns about military action in Iraq," he added.

The price rally is good news for oil producers that rely heavily on oil revenues to keep their economies and public finances in good shape.

But it has set alarm bells ringing in oil-consuming nations.

Motorists are already facing higher prices at the pumps, while companies from manufacturers to airlines are seeing costs pick up.

"It is a concern because higher oil prices essentially act as a tax on consumption," said Commerzbank economist Nick Parsons.

"In a world which is teetering on recession, all that happens is that it eats into firms' profit margins."

Parsons said companies find it hard to raise prices to cover increased costs in times of recession, while consumers are likely to spend less on other goods if gasoline prices rise.

"So I think that's going to dampen world economic growth and that's why we're not looking for any interest rate rises anywhere in 2003," he added.

There was little sign of any respite for oil consumers Monday, as prices pushed higher amid concerns that the strike in Venezuela might not be resolved before any war in Iraq begins.

The loss of Venezuelan and Iraqi exports would deprive the oil market of about five million barrels of oil per day, analysts estimate.

Although members of the Organisation of Petroleum Exporting Countries (OPEC) have pledged to make up any shortfall caused by the loss of Iraqi exports, experts say they would be hard pressed to replace Venezuelan supplies as well if the strike drags on.

Moreover, even if OPEC does agreed to pump more oil, the extra supplies are unlikely to arrive on world markets for several weeks yet given the time needed for members to reach a decision and to ship the oil from the Middle East to the United States.

"Hopes that OPEC will provide more oil will have to wait a while," warned Lawrence Eagles, analyst at brokers GNI.

ALEXANDRA OLSON Associated Press

CARACAS, Venezuela - World oil markets will suffer for some time from the effects of the general strike aimed at toppling President Hugo Chavez, Venezuela's top oil official said Monday.

The 4-week-old strike has shut down key sectors of the economy and created gasoline and food shortages throughout Venezuela, the world's No. 5 exporter. Oil production has plunged from 3 million barrels a day to 260,000 barrels a day.

"For some time, we will have distortions on the world oil markets due to this situation," Oil Minister Rafael Ramirez acknowledged Monday.

The strike escalated Monday as police used tear gas to separate opponents and supporters of Chavez outside the state oil monopoly's headquarters in Maracaibo, the hub of the country's oil-producing West.

Strike leader Carlos Ortega, who leads Venezuela's largest labor federation, called on all citizens Monday to stop paying their taxes.

And secret police arrested National Guard Gen. Carlos Alfonso Martinez, one of dozens who have occupied a Caracas city square for three months in rebellion against Chavez. A handful of people protesting the arrest outside secret police headquarters fled under a hail of rocks thrown by Chavez supporters and tear gas fired by police.

The combined influence of Venezuela's crisis and the threat of U.S. war in Iraq sent crude futures to a high of $31.02 a barrel Monday on London's International Petroleum Exchange, and a two-year high of $33.65 a barrel on the New York Mercantile Exchange.

U.S. markets were bracing for higher heating oil prices heading into winter, higher gas prices, and higher prices for all sorts of oil-based products. But reports that the Organization of Petroleum Exporting Countries was considering increasing output by at least 500,000 barrels a day took some heat out of the price.

OPEC's basket of seven crude oils hit a two-year high of $31.06 a barrel Friday, OPEC officials said Monday. Venezuela is an OPEC member.

Venezuela's opposition called the strike to force Hugo Chavez to call a Feb. 2 nonbinding referendum on his presidency, which runs to 2007. Strike leaders hope a poor showing will increase pressure on Chavez to resign. At least 35,000 of the 45,000 employees joined the walkout at Petroleos de Venezuela S.A., the state-owned oil monopoly, aren't on the job.

Opponents blame Chavez for economic contraction of 7 percent in 2002, annual inflation surpassing 30 percent, 17 percent unemployment and chronic political unrest. They charge Chavez is trying to impose a leftist authoritarian government.

Chavez counters his adversaries are trying to mount an "economic coup" and that Venezuela's constitution allows a binding referendum on his presidency next August.

Venezuela's government and opposition have traded charges over the actual state of the nation's crucial oil industry, which represents 30 percent of Venezuela's $100 billion gross domestic product.

Ramirez claimed Monday that oil production was up to 600,000 and 700,000 barrels a day and would reach 1.2 million barrels a day next week.

PDVSA executives say it's impossible for the government to increase production so quickly, even with replacements of field crews, executives, tanker crews and dockhands.

Ramirez also said that Venezuela's largest refinery, the Paraguana complex, should be running at full capacity of 930,000 barrels per day within two months.

Last week, Ramirez said a Venezuela-run refinery in Curacao would be up and running within weeks. But union and management at the refinery, which processes Venezuelan crude and ships gasoline back to Venezuela, say the mammoth facility shut down completely on Friday.

Chavez says his government is importing gasoline from Brazil and Trinidad, though the cargoes amount to little more than a few day's normal demand. Ramirez said the government may import gasoline through January.

The strike has cost $2 billion in lost oil revenue and damage to oil installations, Ramirez said.

The government also is importing food. Colombia sent trucks carrying more than 500 tons of cooking flour. The Dominican Republic sent rice.

Despite Chavez's efforts to break the strike, motorists lined up by the hundreds at the few service stations that had gas. Supermarkets were slowly running out of products like milk and bottled drinking water.

The Organization of American States has been mediating talks to find an electoral solution to the crisis. The next round of talks is set for Thursday.

By NIKO PRICE, Associated Press Writer Published 8:08 a.m. PST Monday, December 30, 2002

CARACAS, Venezuela (AP) - Latin Americans have spent the past few years getting rid of entrenched systems that have failed them. But some are beginning to realize their new leaders aren't making life any better than the old did.

With much of the region gripped by uncertainty over struggling economies, the social unrest that is now paralyzing Venezuela could foreshadow wider threats to newfound democracies across the region.

After President Bush promised to make this "the century of the Americas," the U.S. government's focus has shifted to the war on terrorism.

But the major concern in Latin America harks back to Bill Clinton's mantra: "It's the economy, stupid." Without a strong recovery in the United States, whose economy dominates the Americas, there is little Latin American leaders of any political stripe will be able to do.

For two decades, the region has been replacing authoritarian regimes with democratic governments in a U.S.-oriented, free-market mold. The problem has been that new policies haven't done much to improve people's lives.

So voters have begun to opt for something else - anything else.

Economic woes led to the 2000 election in Mexico of Vicente Fox, a conservative businessman who toppled 70 years of single-party rule with promises of huge economic growth and first-world status for the country.

Discontent in Brazil led to the election this year of Luiz Inacio Lula da Silva, a leftist former union boss who promised to make fighting hunger his top priority. His victory was seen as a rejection of the free-market policies of the defeated government, which had curbed runaway inflation but left the economy stagnant and millions in poverty or jobless.

Ecuadorans just elected as president Lucio Gutierrez, a former army colonel who led a short-lived coup in 2000 aimed at ending endemic corruption and halting the spread of poverty.

Argentina has seen a revolving door of presidents since the country defaulted last year on much of its $141 billion foreign debt. A presidential election in April will determine whether the country continues on the free-market path or moves to the left.

Venezuelans, meanwhile, are learning unconventional leaders may not fulfill hopes either.

The radical populist Hugo Chavez was elected president in 1998 and again in 2000, promising to remake society after a 40-year alternation of power between two corrupt, centrist political parties. But he has been unable to make the once envied oil-based economy grow and has seen unemployment and poverty rise.

A powerful but confused opposition movement briefly ousted Chavez last April only to see him return two days later. The country is now a month into a general strike and sometimes violent street protests aimed at ousting him.

The protesters demonstrate in the name of democracy, despite the fact that Chavez's term lasts until 2007 and the constitution doesn't allow a referendum on his reign until August.

"We all thought he'd bring prosperity, but he's making us poorer," said Eliezer Chavez, a 20-year-old computer consultant who voted for Chavez but has joined the demonstrations demanding his removal.

He said the opposition movement is "totally democratic," because democracy for him means people can oust an elected leader they feel isn't doing a good job - whether the constitution allows it or not.

Part of the threat to the region's young democracies is that democracy in Latin America is largely superficial. There are elections, but leaders often do not serve all the people. The idea of a civic spirit is not deeply ingrained.

"These societies have adopted some of the more superficial aspects of democracy and market economies," said Steve Johnson, a Latin American policy analyst for the Heritage Foundation, a conservative think tank in Washington. "You have electoral democracy, but you're basically still electing an autocrat."

There is no indication that the region will reverse its economic slide - or that its institutions can stand up to the challenge.

"I think things will get worse in Latin America, and the problems will deteriorate further," said Sidney Weintraub, director of the Americas program at the Center for Strategic and International Studies, another Washington think tank.

"I think you'll get breakdowns in democracy, and as the economies fail people will experiment in ways that will only hurt them more."

12/30/2002 - Source: www.bnamericas.com In the absence of major oil and gas finds in 2002, the biggest news was the wave of companies changing hands, new bidding rounds, Venezuela's two general strikes and developments in liquefied natural gas (LNG) projects. LNG Bolivia's government is doing the Pacific LNG consortium no favors by postponing the decision on using a port in Chile or in Peru. Also in Bolivia, France's TotalFinaElf is studying its own LNG project, and is reportedly in talks with Pacific LNG to merge the two projects. In Peru, Hunt Oil aims to secure a buyer by mid-2003 for LNG from Camisea, while in Venezuela, the government signed contracts to begin feasibility studies for the Mariscal Sucre project, and in Trinidad & Tobago Atlantic LNG began operations at Train 2, with Train 3 set to follow in early 2003, and Train 4 talks underway. Meanwhile, companies are competing for pole position in Mexico's market, where regasification plants would supply the local market and dispatch to the US. State power company CFE plans to buy LNG for power plants around Altamira. Companies jostling for position there and elsewhere include Marathon, El Paso, Phillips, Shell Gas & Power, Repsol-YPF, Gas Natural SDG and Tractebel. The Mexican government is scheduled to publish definitive LNG regulations in February 2003.

ARGENTINA - After the financial meltdown and the peso's devaluation, the government converted regulated tariffs into pesos. This hit the natural gas sector more than oil, as most natural gas continues to be consumed domestically and is now being paid for at much lower rates. Oil benefited through a combination of lower production costs and export prices that continue to be in dollars. Companies remain highly nervous about increasing their Argentine exposure due to exchange rate volatility and authorities prowling for ways to boost income from taxes on the highly visible oil and gas industry.

BOLIVIA - President Gonzalo Sanchez de Lozada took office in August and made it clear he would prioritize the direct consumption of natural gas, with an early plan being the connection of 250,000 residential and commercial consumers by 2005. State oil company YPFB has started connecting 14,000 households, and the government is preparing to tender a contract to make the remaining 236,000 residential connections with financing from the World Bank and the Andean Development Corporation (CAF). The government signed protocols with Paraguay for an 850km pipeline to Paraguay's capital Asuncion, which would give Bolivia an alternative export market and could be operating by 2H04. Upstream, proven and probable natural gas reserves were 52.3tcf at January 1, 2002, and the government scrapped a licensing round in September and plans to try again in 2003.

BRAZIL - Oil giant Petrobras took a controlling stake in Argentina's Perez Companc, adding exploration, production, refining and transport assets across the region to its international portfolio, firmly establishing Petrobras as Latin America's leading integrated oil company. The acquisition's impact will become more apparent once Petrobras selects areas for growth and expansion, and possibly some minor divestments. Fuel prices were deregulated in January and quickly became politically contentious, as Petrobras hiked prices closer to international levels, only for the government to peg the price of liquid petroleum gas (LPG) again. It remains to be seen whether the incoming Lula government sticks to deregulation, as there have been calls for all prices to be fixed again. Exploration and production activity was fairly muted through 2002, as companies that joined in the various oil licensing rounds over the last five years proceed with their exploration programs. The most significant announcement came from Petrobras, which discovered and is testing a 600 million barrel reserve in the Jubarte field. Domestic oil production averaged just over 1.5 million barrels a day (mb/d), out of the country's total consumption of about 1.8mb/d, and Petrobras expects the country will be self-sufficient by 2005. That prediction relies on boosting the local refining capacity, which is close to capacity. CHILE State oil company Enap announced plans to invest US$1.35bn over five years to double market value to US$3.3bn. Enap is building on its refining expertise and its RPC subsidiary started operations of a US$37mn plant to produce gasoline additive dipe in July, and is considering a US$26mn gasoline de-sulfuring plant and a US$19mn refurbishment of its cat cracker. Enap's Petrox refinery completed a US$32mn upgrade in June, and in December presented plans for a US$39mn clean fuels project.

COLOMBIA - All in all, a pretty bad year. Dwindling reserves and falling production means 535,000b/d crude production is expected for 2003, down from 687,000b/d in 2000. State oil company Ecopetrol plans to shed 17% of its workforce over the next three years, the gas sector marked zero growth, and plans surfaced to export Caño Limé¯n crude through a port in Venezuela to sidestep domestic security issues. Ecopetrol and its Venezuelan counterpart PDVSA floated the idea of building a natural gas pipeline to meet a short-term shortage in western Venezuela, reversing the flow once Lake Maracaibo gas production kicks in over the next few years. Companies including Seven Seas, CMS Oil, Petrobras, Tecpetrol, Petrolex and AEC divested upstream assets.

ECUADOR - The OCP heavy crude pipeline increased investment to US$1.3bn to make up for lost construction time, Vintage sold off Ecuadorian assets, and Noble started pumping gas from the Amistad field. State oil company Petroecuador called for bids on a US$100mn multipurpose pipeline, started the country's ninth bidding round and signed a production sharing agreement with Chile's Enap, while putting other plans on hold until the new government takes over in January.

MEXICO - State oil company Pemex completed the US$1.6bn workover of its Madero refinery in June, but missed the year-end target to call for bids on the US$1.2bn reconfiguration of the Minatitlan refinery. Crude production climbed slightly but steadily through the year, and Pemex and the government prepared the multiple service contracts that will allow greater private participation. Sector uncertainty however held up plans to put gas distribution in Veracruz state into private hands.

PERU - Construction of the pipeline that will carry Camisea natural gas to capital city Lima was 70% complete in November. Belgium's Tractebel took an 8% stake in the pipeline and in May signed contracts to distribute the gas once it gets to Lima and Callao. On the upstream side of the project, the consortium completed 3D seismic and its first development well and started drilling the second, and Argentina's Pluspetrol started the sale of half of its 20% project stake. Sector authorities meanwhile cut royalty rates for new exploration projects and started consideration of a similar cut for marginal fields.

VENEZUELA - President Hugo Chavez is a baseball fan and so knows the meaning of "three strikes and you're out." Strike one in April toppled him for 48 hours, while strike two in December gained much more support from both the oil industry and other sectors, although at the time of writing Chavez was still hanging in. Despite the political scenario, the government proceeded through the year with a number of huge natural gas projects. It has signed preliminary agreements for the Mariscal Sucre, received bids for the Deltana Shelf project and detailed anticipated investment at the Anaco gas project.

31.12.2002

The past year has been dominated by an American obsession with Iraq which, remarkably, only seized the Bush Administration three long months after the terrorist attacks on the United States in September, 2001. In my year-end survey 12 months ago, just after the US occupation of Afghanistan, I simply wrote that Middle Eastern Muslims were waiting to learn "which of their countries the United States would hit next: Iraq, Somalia or Sudan".

Washington was clearly looking for a fresh target, but nobody had a clue which way it would jump. In that sense, the most important event of the year was President George W. Bush's speech in January in which he announced that he had uncovered an "axis of evil", and gave Iraq first place.

The subsequent months were filled with endless speculation about when and how the US would attack Iraq, whether it would go to the United Nations first (it did, in September) and whether it would give the UN arms inspectors time to do their job (which remains to be seen) - but it all distracted the US public's attention through a year of recession and corporate scandals, and gave control of the Senate back to the Republican Party in last month's congressional elections.

Whatever the original motives for choosing Iraq, the project has an almost unstoppable momentum within the introverted world of Washington politics, and the Bush Administration almost certainly will attack Iraq, probably in the next few months.

But the weird thing about the year is that the international news has been virtually monopolised by a non-event. There has been no fighting in the Middle East apart from the familiar cycle of violence between Israelis and Palestinians, and no regimes have toppled. Nothing tangible has yet changed in the region, apart from a gradual increase in the usual pace of US and British bombing in Iraq's no-fly zones.

The terrorists haven't been busy either, or at least not the ones who are the main concern of the US "war on terror". Terrorists killed thousands in places like Colombia and Nepal, in guerrilla wars that barely made it into the mainstream media. Many hundreds died in terrorist attacks in Israel and Russia, countries fighting wars against Muslim subject peoples who have managed to hitch their local struggles to Washington's global crusade.

But barely 200 Westerners were killed by terrorists during the year, most of them in one attack in Bali, and hardly any of them were Americans.

Things may change dramatically once the US attack on Iraq gets under way, but the allegedly "titanic struggle between good and evil" (in Mr Bush's words) has been a phony war for both sides.

Almost unnoticed was the dramatic progress in closing down the real wars that have been ravaging whole regions and killing huge numbers of people.

First came the 27-year-old Angolan civil war, which ended suddenly in April after the rebel leader, Jonas Savimbi, was caught in an ambush and killed.

Next, in July, was a breakthrough in peace negotiations in Africa's oldest war, between the Arabised Muslim northerners and southern, mostly Christian Africans of Sudan. There is not yet a definitive ceasefire in Sudan, but a war that has killed two million people over 33 years finally seems to be subsiding.

Then, still in July, a peace agreement in the Democratic Republic of Congo (formerly Zaire) ended what has been called "Africa's First World War". Most of the six foreign armies have already gone home, and the fighting that caused more than two million Congolese deaths in four years has subsided to sporadic outbreaks of banditry.

The miracles then moved east, to the two longest-running wars in Asia. In September the Liberation Tigers of Tamil Eelam dropped their demand for a separate state for Sri Lanka's Tamil minority, opening the way for negotiations to end the 19-year war that has devastated the island nation.

This month, Indonesia signed a peace deal with the separatist rebels of Aceh in northern Sumatra, ending a 26-year war by granting the provincial governments of the region a 70 per cent share in Aceh's oil and gas revenues.

Also this month, the Tutsi-dominated Government of Burundi signed a power-sharing agreement with the largest of the Hutu opposition groups which gives the central African country its best chance for peace since 1963.

There was bad news, too: a new civil war broke out in the once-stable Ivory Coast in September, and the Maoist insurgency in Nepal, gaining strength by the month, threatens to produce a New Year zero in that impoverished and misgoverned country.

But from 15 wars only five years ago, Africa is now down to only three or four , and Asia is down to just three (in Nepal, Kashmir and the southern Philippines).

Even allowing for one civil war in the Arab world (Algeria) and one in Latin America (Colombia), the world is a more peaceful place this month than it has been at any time since September 1939.

More peaceful, but far from out of the woods. The most terrifying confrontation of the past year was the summer stand-off between India and Pakistan, two newly fledged nuclear powers that have fought each other three times already. If they were to do so again, using their new weapons, the death toll in a matter of days would exceed the total losses in all the other wars of the past 10 years.

New Delhi and Islamabad have stepped back from the crisis for the moment, but huge armies still face each other across the border, and the Kashmir dispute is a permanent irritant.

Similar anxieties haunted the Korean peninsula, where North Korea's desperately poor and isolated communist regime began talking up its nuclear weapons programme, probably in the hope of shaking loose some extra aid.

But in the main, Asia just got on about its business. After almost a year's hesitation, China's 76-year-old ruler, Jiang Zemin, decided to hand on the presidency to his designated successor, Hu Jintao, at the party congress in November, but behind the scenes he remains very much in control.

Earlier in the year Malaysia's Prime Minister, Mahathir Mohamad, also 76, told his party congress that he, too, would retire after more than 20 years in power. The main difference was that Dr Mahathir may actually mean it.

And the release from house arrest in May of Burma's democratic icon, Aung Sang Suu Kyi, suggested that the military regime that has devoted the past 40 years to plundering the country may finally be ready to make a deal.

The principal theme in Europe this year was expansion - of Nato, to take in most of the former Warsaw Pact countries that escaped from Soviet control in 1989, but above all of the European Union.

After months of cliff-hanging negotiations and a second referendum in Ireland (the Irish had given the wrong answer the first time), the 15 EU countries showed up at the Copenhagen summit in December and promised to take in 10 new members in 2004 - Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, Hungary, Slovenia, Malta and Cyprus - followed by Romania and Bulgaria in 2007.

More importantly, they gave Muslim Turkey a promise to review its case for entry in late 2004, and to open negotiations for Turkish membership soon afterwards if its human rights performance continued to improve.

Given that Turkey's population will be bigger than that of any existing member by 2020, some EU countries were reluctant to make this promise, but the EU decided it was not just a Christian club and the newly elected Islamic government of Turkey, whose leaders call themselves Muslim Democrats, was given an incentive to keep its promises about preserving a secular, democratic state.

As a bonus, Ankara will push the Turkish-Cypriots to join the Greek-Cypriots in a reunited Cyprus before the island enters the EU in 2004.

For the rest, it was the usual heavy traffic of national elections in a continent of almost 50 countries, including a bad case of tactical voting in France that unexpectedly catapulted neo-fascist leader Jean-Marie Le Pen into a run-off with President Jacques Chirac in June. (Chirac won by a margin of four-to-one.)

In The Netherlands, right-wing maverick Pym Fortuyn was assassinated only days before the May election, sweeping his single-issue, anti-immigrant party into the new coalition government on a huge sympathy vote (but the leaderless party was disintegrating by year's end).

In Germany, Chancellor Gerhard Schroeder narrowly won another four-year term in September by promising Germans not to take part in Mr Bush's planned war against Iraq.

Most of the continent's larger economies grew slowly, but beyond almost universal grumbling about the new currency, the euro, Europe's discontents remained manageable.

In the Middle East, the steady US march towards war with Iraq terrified most local governments. The region remained at peace, except for the low-level Israeli-Palestinian violence and the decade-old mutual slaughter between Islamists and the military-backed regime in Algeria, but not a single Arab regime was confident that it could contain the potentially huge social and political upheavals that might be unleashed by an American invasion of Iraq.

Israeli Prime Minister Ariel Sharon, on the other hand, thought it was a wonderful idea, and warmly urged Washington along.

Africa, though it is gradually emerging from its equivalent to Europe's Thirty Years War, continued to labour under almost every other handicap imaginable. Encroaching famines put the lives of millions at risk in southern Africa and far to the north in Ethiopia and Eritrea.

Out of 30 million Africans living with HIV/Aids, only 30,000 have access to anti-retroviral drugs. The rest are condemned to an early death. In South Africa, one in nine deaths is because of murder.

Some of the "big men" who blighted Africa's first post-independence generation are fading away at last - Kenya's Daniel arap Moi allowed power to pass peacefully to the opposition in democratic elections this month - but others, like Zimbabwe's Robert Mugabe, cling fiercely to office even if it means the ruin of all their previous achievements. Unnoticed by most of the world, Namibia's Sam Nujoma seemed to be setting out down the same path as the year unfolded.

As Nigeria's President Olusegun Obasanjo pointed out in June, corrupt African leaders have stolen at least $140 billion from their people in the decades since independence, and it's not over yet. But at least the wars are ending.

In Latin America there are no wars (apart from Colombia) and the poverty most people experience is not so absolute, but the sense of having been cheated is even more acute. Even where the neo-liberal promises of rapid economic growth came true, they meant little improvement in the lives of the poor or middle class; they just made the rich even richer.

Argentina's economic meltdown in December 2001 led not only to a revolving-door presidency (five presidents in two weeks) and popular revulsion against the whole traditional political class. It was also the starting gun for a wave of political upheavals that is sweeping South America.

The first crisis, an unsuccessful US-backed attempt in April to overthrow the continent's one existing left-wing leader, President Hugo Chavez of Venezuela, was notable for the speed with which the poorest section of the population came to his defence despite his failure to improve their economic plight.

That was followed by the imposition of a state of emergency in Paraguay and widespread looting and bank closures in Uruguay in July, and an electoral upset in Bolivia in August that gave over a third of the seats to candidates of Indian descent and brought Evo Morales, leader of the Movement Towards Socialism, to within a hair's breadth of the presidency.

Then in quick succession came the victory of Workers' Party leader Luiz Inacio da Silva ("Lula") in the October presidential elections in Brazil; populist Lucio Gutierrez's capture of the presidency in Ecuador's November elections, less than two year after he was jailed for leading an attempted leftist coup; and a renewed confrontation between Hugo Chavez and Venezuela's right-wing white elite that halted oil exports from one of America's largest suppliers this month.

Almost half of Latin America is now under populist left-wing governments, and Argentina is likely to be the same after the March elections. While the Bush Administration has been focusing on the Middle East, it has lost control of its own backyard.

The US remains the great conundrum of the planet. Americans have been so traumatised by a single large terrorist attack on their own soil that they have effectively handed the country over to an Administration with a radical right-wing agenda for domestic change and foreign expansion, though fewer than a quarter of them actually voted for it.

The question is whether the American people can recover their balance without having to go through some painful and expensive, though ultimately instructive, experiences in the Middle East. The answer, at present, appears to be no, so a great deal of the rest of the world's business is on hold.

• Gwynne Dyer is a London-based independent journalist.