www.bangkokpost.com Yuthana Praiwan

Security measures have been beefed up at all petroleum-related installations across the country in the wake of US troops invading Iraq.

Energy Minister Prommin Lertsuridej met yesterday with senior executives of all oil companies and power plant operators to discuss precautionary measures to prevent sabotage attempts on oil depots, refineries, power plants, oil transport system, oil and gas pipelines and onshore and offshore oil drilling platforms.

Dr Prommin warned operators to thoroughly check all equipment and systems related to alarms, fire extinguishers and safety.

As well, the oil companies were asked to put in place contingency plans to secure enough oil supplies in case the war did not end quickly.

The terrorism concerns arose after Thailand expelled three Iraqi diplomats and a report from a western news agency that the country was a silent supporter of the US military action.

Prime Minister Thaksin Shinawatra on Wednesday said Thailand would not commit any troops or other forms of support to the campaign in Iraq.

``All oil refineries have fully met the 5% oil reserve as required while those previously shut down for annual maintenance have already started their operations. So, disruption of oil supplies is no worry,'' said Dr Prommin.

Shell and Caltex have increased security at their refineries, oil depots and offices to as high as that seen after the Sept 11, 2001 events.

Tiraphot Vajarabhaya, chairman of Shell Company in Thailand, said Shell had sought co-operation from the police to provide security to its facilities and was making regular contacts with foreign embassies to help provide information about possible terrorism and sabotage attempts.

On the oil supply side, Mr Tiraphot said he was confident that oil procurement would continue as usual if no untoward events took place.

``Our parent company abroad has promises to supply sufficient oil to Thailand,'' he said.

If the war was not swift, Mr Tiraphot said he was uncertain whether oil prices would rise, since global supplies remained high.

Opec has also reaffirmed its intention to produce more oil to make up for the loss of Iraqi oil.

Mr Tiraphot also downplayed concerns that the reported burning of oil wells in Iraq would trigger a price jump. ``We should take the supply and demand into account before jumping to such a conclusion,'' he said.

He believed global oil supplies would not be disrupted despite the absence of 2.4 million barrels per day of output from Iraq, as Opec still produced 30 million barrels per day.

In addition, Venezuela has resumed its oil production of two million barrels per day after a protracted civil dispute.

A Unocal Thailand source said the company had increased security measures at its six gas production and exploration platforms in the Gulf of Thailand. The company had sought co-operation from security agencies and the Royal Thai Navy.

The Electricity Generating Authority of Thailand (Egat) had also raised the security level of its power plants to 200+2 from 200+1.The maximum level is 200+3.

www.forbes.com Dan Ackman, 03.21.03, 9:06 AM ET

NEW YORK - There have been oil supply disruptions in the past week, but not in the Persian Gulf. The relatively small-scale disruptions came in Nigeria, where Shell Transport and Trading announced further closures of oil flow stations owing to recent violence near the company's facilities.

Shell (nyse: SC - news - people ) plans to withdraw all staff from north of the Niger Delta, which likely would cut oil output by about 126,000 barrels per day. This and other disruptions in the West African nation have been overshadowed and prices have dropped as the U.S.-led war against Iraq has gone largely according to plan.

Since the end of diplomatic efforts made the Iraq war certain, world oil prices have fallen by more than 25% and continued their decline overnight. Fears that drove prices higher in the last three months have not been realized as world oil markets shrugged off the minor supply disruptions caused by the war, which total less than 1% of OPEC's output.

Benchmark Brent crude oil fell 42 cents, to $25.08 per barrel, in London morning trading and touched a three-month low of $24.80. U.S. crude futures also plumbed fresh three-month lows, down 43 cents to $27.69. The world price of oil has dropped between 26% and 27% in a week.

There have been reports issued by U.S. Defense Secretary Donald Rumsfeld and Kuwaiti television that there may be oil fires in Kuwait, but the Iraqi oil minister has denied the reports and a British military spokesman said U.S. forces should seize much of Iraq's Rumaila oilfields intact. In the short term, legal oil exports from Iraq have ceased, but that stoppage has not actually cut into supplies. There have been no reported disruptions of tanker movements in the Persian Gulf.

In any event, Iraq's fellow OPEC members have stepped in.

Speaking for the group, Abdullah bin Hamad Al-Attiyah, minister of energy and industry of the state of Qatar and president of the OPEC conference, said in a statement: "In light of the events unfolding in Iraq and the interruption of supplies from an OPEC founder member, in my capacity as president of the conference, I have consulted with their excellencies, the heads of delegation to the OPEC conference, with whom I have discussed the implementation of the above-mentioned conference decision." That decision was "to respond to any supply crisis," but so far there is none.

Venezuela, OPEC's only democracy, has revived production. Its government claims production of 3 million barrels per day--about what the country was producing before labor unrest began there in early December 2002. This quantity is slightly more than Iraq produced before the war, according to the U.S. Energy Information Administration.

While oil price drops are generally good for the U.S. and other oil importers, Reuters reports that in the Middle East, the news is being seen as not so good and the Saudi-led response to the war has caused divisions within the cartel.

While OPEC Secretary General Alvaro Silva Of Venezuela said that members have been authorized to use their spare capacity to make up for the shortage of Iraq supply, Iranian Oil Ministry Adviser Hossein Kazempour Ardebili disagreed. He said on Friday any increase in output would be a "violation" since no decision had been taken to raise OPEC quota limits.

"The OPEC general secretary is not authorized to say this and it is OPEC that could decide about it and none of the OPEC ministers approved it," Reuters quoted Kazempour as saying.

"It is giving a green light to America to launch an attack and none of the OPEC members wants to give a green light to attack another OPEC member," he said. OPEC President Abdullah al-Attiyah said on Thursday the exporter group saw no need to pump more oil into a saturated market.

Brave new world of oil rising

Visit www.smh.com.au for the most up-to-date news March 22 2003

The war will have a profound impact on global oil levels. Barry FitzGerald and Richard Salmons report.

The slogan "No blood for oil" was scrawled in chalk on the pavement outside the Stock Exchange building well ahead of the first missile attacks on Iraq.

While it reflected the views of ardent anti-war campaigners, many of John Howard's "ordinary" Australians also have a suspicion that the war is really about oil and not an attack to take out a despot in control of weapons of mass destruction.

The conspiracy theorists take things further.

Control of Iraq is the first step in a plan by the oil-hungry US to break open the Middle East's stranglehold on the world's biggest oil reserves.

Saudi Arabia will be next, not with bombs but by a US-inspired toppling of the ruling elite.

The end result will be the dawn of a golden economic era, one underpinned by abundant and therefore cheap Middle East oil produced by the US oil majors which also happen to be big supporters of their Texan president.

So they would have you believe.

It does not matter that cheap oil would destroy the US oil majors or that the cost of the war, variously estimated at $US22 billion to $US140 billion ($37 billion to $236 billion), buys a lot of oil, any day of the week.

Whether or not there is any truth in the claims and suspicions about the real reasons for the war will be debated for years to come.

Right or wrong, they will not go away, even if Britain's idea of handing control of the Iraqi oilfields to the United Nations once victory by the "coalition of the willing" is secured sees the light of day.

What is known with certainty is that war in Iraq, or anywhere else in the Middle East for that matter, necessarily has oil at, or near, centre stage.

Iraq is after all a major, albeit frayed, oil producer and, more importantly in the long run, the owner of the world's second biggest reserves.

It had been producing oil at a daily rate of 2.4 million barrels under the supervision of United Nations under the oil-for-food sanctions that came into effect in 1999.

Because of its huge undeveloped reserves Iraq could produce a lot more. But it has not had the capacity to invest in additional production and technically at least, it remains part of OPEC.

OPEC's quota system on production by its member countries has the aim of keeping the oil price as high possible without hurting demand, with a price of $US25 to $US28 a barrel the target.

So while its member countries, whose economies all depend heavily on oil, control two-thirds of the world's reserves, they produce only one- third of the 78 million barrels of oil that the world gobbles up daily. In effect the non-OPEC world produces everything it can and buys the rest from OPEC.

But OPEC is the swing producer in the system. It is the producer that can make a difference to the global oil price by adjusting its quotas. That also makes it the producer that can deliver the non-OPEC world a nasty shock every now and then.

Before even a shot was fired in the war, Australians got a lesson on the interplay between war in Iraq and what it meant for oil prices. The lesson was given at the petrol pump in the form of record prices of more than $1 a litre.

Yet even as petrol stations marked up their boards, analysts were predicting a flood of oil onto the market, as well as a significant drop in demand that would help ease any pressure on prices. It's early days in the war but the predictions are looking good. Oil prices have crashed from just under $US40 a barrel to $US28 a barrel.

While the global markets ran up the price on the fear of war and supply disruptions, they are also took it down on expectations of the war being short and precise.

That wild swing in attitude and pricing served to highlight the precarious nature of the oil market. Despite being a fuel vital to the lifestyle of western countries, oil is still vulnerable to huge volatility.

At present, the volatility is to the downside on price. Analysts believe that the commencement of war could unlock vast supplies of the resource.

"The general consensus view is that there will be a correction back downward, but it depends on what kind of inventory comes back on line," said Salomon Smith Barney analyst Gordon Ramsay. "There will be stockpiles and reserves that will come on to the market, and that will limit the uncertainty," he said.

"The question is, what do countries have in commercial reserves that have been hidden from official statistics?"

Indeed, the oil markets have so far shrugged off concerns that any disruptions could be substantial or last long. In electronic trading on the New York Mercantile Exchange yesterday afternoon (eastern Australian local time), oil was trading at $US28.30 a barrel, close to a three-month low.

The price was some 21 per cent down for the week leading up to the start of the war, again reflecting the belief that a war in Iraq will be quick and that there will be little damage to its oilfields and facilities.

The question in the minds of analysts, though, is how much other factors - including additional production, the release of reserves, and falling seasonal demand in the West - will offset the combination of a cut in supply from Iraq and squeezes elsewhere in other OPEC countries, such as Venezuela and Nigeria.

Up until the commencement of hostilities, Iraq has been exporting but at a reduced rate of about 1.5 million barrels a day. This is balanced by a Saudi Arabian stockpile that could make up for about a month's disruption of those exports, although Saudi officials have said the country does not plan to draw down all 50 million barrels.

But Saudi Arabia is now producing about 9 million barrels a day, or about 1.5 million more than its OPEC quota. The country has about 1.5 million barrels of additional production capacity that it can bring on in less than several weeks, if the need arises.

The US also controls a Strategic Petroleum Reserve of 600 million barrels, but it has said it wants to rely on OPEC production to fill any gap.

In addition, Ramsay noted that Venezuela, which has been the scene of a bitter oil industry strike, is increasing production again. He said output that was 1.6 million barrels a day in January had reached 2 million by the end of February.

Adding further comfort, the arrival of spring and summer in the Northern Hemisphere could reduce demand for oil by as much as 2.7 million barrels a day. In total, private and public oil stocks counted under the auspices of the International Energy Agency officially amount to more than 90 days of imports by Western countries.

While such figures appear to provide a sizeable cushion for any loss of Iraqi supplies, analysts point out that it will take time for new supplies to arrive, and that the conflict comes at a time when overall Western reserves are at a record low.

Analysts are focused on industry crude oil stocks, which includes oil held in refineries, petrol stations and throughout the supply chain. Such stocks total just 270 million barrels in the US, close to the minimum required for smooth refinery operation.

Visit www.smh.com.au for the most up-to-date news

www.msnbc.com wMSNBC News Services

Allied forces are now in control of the oil fields of southern Iraq and are bringing in contractors to extinguish fires burning at seven oil wells, Pentagon officials told NBC News on Friday. EARLIER, BRITISH military officials scaled back their estimate of the number of oil wells burning in southern Iraq, saying that only seven wells were ablaze -- not the 30 reported earlier.

The report of seven wells burning matched the number being reported by the Pentagon. The update came from British Adm. Sir Michael Boyce, chief of defense staff, at a briefing in London.

The reason for the rollback from the earlier estimate was not clear.

The allies say that Iraqi forces set fire to the wells as the invasion began, but Iraqi state television broadcast a report early Saturday saying that troops had set oil-filled trenches -- not wells -- ablaze in an effort to prevent U.S. and British warplanes from finding their targets.

"The leadership in Iraq and the government organizations are keen to preserve this wealth, developing and expanding its capability and not burning it," the television station said in a statement attributed to an "authorized source."

400 OIL WELLS IN AREA U.S. and British officials were pleased that the number of wells on fire was a small percentage of the 400 wells in the area near Basra.

"Put into context, that's perhaps not as bad as we might have feared," British Defense Secretary Geoff Hoon said earlier Friday.

Theoil fields of southern Iraqpump about half of the country's daily output of 2.5 million barrels.

A British military spokesman said the fires were set by Iraq. "Several of the oil heads have been set on fire by (Iraqi President) Saddam Hussein's forces in an attempt to deflect us from the task," Capt. Al Lockwood told Reuters.

Another British spokesman, Col. Chris Vernon, told Reuters that "U.S. Marines are moving well into the ... oil fields, and it seems like we will be able to seize much of the oil structure intact."

The picture in northern Iraq was less clear amid unconfirmed reports that U.S. special operations forces had secured the giant oil fields around Kirkuk, the biggest of Iraq's 15 operational fields.

A U.S. official said earlier this month that Iraq had placed explosives at the Kirkuk fields to prevent their being captured in the event of a U.S. invasion.

MARKETS HAPPY Oil markets seemed to take comfort from the speed of the U.S.-British advance and shrugged off the news of the well fires. The lack of an impact from the war on oil shipments from Kuwait also inspired confidence.

Kuwait's state-run radio said Kuwaiti ports were operating normally Friday, and an oil industry source said crude shipments from Kuwaiti oil terminals were continuing without interruption.

The Pentagon has said it would try to secure Iraq's oil fields quickly to prevent Iraqi forces from damaging the country's 1,685 wells.

1991 FIRES Even before the current war began, the Pentagon had expressed fears that Saddam Hussein had planned to sabotage Iraq's oil fields.

In 1991, Iraqi troops destroyed more than 700 well heads in Kuwait, turning its oil fields into a desert inferno that took seven months to extinguish.

When Iraqi troops retreated from Kuwait inFebruary 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 seawater 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.

12 YEARS OF SANCTIONS 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.

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.