<a href=www.kron4.com>Read URL VIDEO: Gas Prices at Record Highs Posted: March 26, 2003 at 9:10 p.m.

SAN FRANCISCO (KRON)  --  Since the war in Iraq began, the price for a barrel of oil has fluctuated, but for the most part this last week it's gone down.

Even so, you won't see that reflected at the gas pump anytime soon.

Gas prices haven't budged: they're still high in the Bay Area, more than $2 a gallon, some places upwards of $2.50.

But if you look at what happened in the first Gulf War 12 years ago, they will be coming down.

Severin Borenstein, director of the U.C. Energy Institute, sees oil price similarities in both wars. Earlier this month, a barrel of oil cost a high of $39.90. After the president's war speech, the price dropped to $35. As strikes began, it was $32.50 a barrel.

"The drop reflected a change in beliefs in how quickly the war would be over and oil flowing again," Borenstein says.

The first full day of war it dropped to $29.88 and on Wednesday, a price for a barrel of oil closed at $28.63.

A $10 decrease in a barrel of oil usually means 25 cents less for a gallon of gas, but oil is bought now for the future so price change takes some time.

If it seems the price of gas rises quicker than it falls: it is true. Borenstein says it takes just two to four weeks to see price increase, but it takes six to eight weeks to see the price drop.

Borenstein says companies try to hold higher onto those prices.

A shorter, successful war should mean prices will keep dropping. Borensteiin doesn't believe fires in Iraqi oil fields will change that, but he is concerned about political unrest in another part of the world, Venezuela, a major oil exporter.

Read Source March 26, 2003, 12:55 p.m. By Martin Hutchinson

Once Saddam Hussein is defeated, the U.S.-led coalition that has defeated him will have its most difficult economic decision: what to do with Iraq's oil revenues, to ensure that they benefit the Iraqi people as a whole, rather than simply fueling a destructive and greedy government machine.

It's a difficult problem. Of all large-scale revenue sources, oil has proved itself the most destructive to the quality of local governments and the welfare of local peoples.

Examples abound. Venezuela, in spite of being a democracy and relatively well-off, has been appallingly run since the 1950s, completely failing to develop a viable non-oil economy. Mexico, one of the world's wealthier countries in 1945, declined into an orgy of corruption owing to its oil wealth, with the worst corruption coming during the 1970-82 period, when oil was at its most valuable. Indonesia, while a dictatorship, was a beacon of Asian success until President Suharto's last years, but has descended into a mire of corruption since the middle 1990s. Since Suharto's departure in 1998, none of his three democratically elected successors has shown any ability to make the Indonesian economy work.

And then there's Nigeria.

There aren't a lot of favorable counterexamples. Tiny countries like Kuwait, Dubai, and Qatar do OK, proving that if you have enough oil wealth — say $100,000 per annum per head of population — you can manage to avoid dissipating it. Even Saudi Arabia, the world's oil-wealthiest country, saw its per capita gross domestic product decline from $25,000 to $7,000 from 1980 to 2000, proving that in spite of the Suharto example, autocracy is no cure for oil-financed corruption. Britain, Norway, and Russia have shown that oil wealth in modest quantities can be a boom, but all three countries had strong non-oil economies before the oil wealth appeared (in the case of Britain and Norway) or a huge non-oil sector that coexisted alongside it (Russia).

It is pretty clear therefore that simply removing Saddam and installing a democratic government will not ensure good government in Iraq. Since the country has the world's second-largest oil reserves and only a weak non-oil economy, there is no chance that it will follow the path of Britain, Norway, and Russia, and every likelihood that even a democratic Iraq will become a second Venezuela or Nigeria, failing to enrich its people and squandering the money in worthless government projects and unbounded corruption. And, of course there remains the possibility that such an Iraq will continue at some level to sponsor terrorist activity.

So what are the alternatives? Until last Monday, under the 1995 "oil-for-food" program, Iraq's oil revenues were handled by the United Nations. This rendered a large portion of the Iraqi population — some 14 million out of the country's population of 24 million — dependent on handouts from the U.N.'s relief administrators. As the citizens of the Berkshire village of Speenhamland found out in 1795, a pure handout program of this kind, in a society that has a high poverty level and considerable social dislocation, simply creates dependence and reduces economic activity. Naturally, the "oil for food" program has also done nothing for Iraq's agriculture. While possibly a necessary (if ineffectual) remedy at a time Iraq was subject to international sanctions, U.N. administration of Iraq's principal source of foreign exchange earnings is bound to cause huge political and economic trouble going forward.

Another possibility would be for the oil revenues to be administered by the World Bank or the IMF, which would use them to pursue a carefully thought out development strategy according to the governing policies of the international institution concerned. This has two problems. First, it would be perceived in Iraq as an exercise in U.S. imperialism, since the World Bank and IMF are perceived in the third world, rightly or wrongly, as instruments of U.S. policy. Second, it would provide no tangible benefits for the Iraqi population themselves (other than by U.N.-type handouts, which have the problems outlined above) but would simply provide a huge "gravy train" for the international institutions and their associated consultants, by which the money will be wasted on ineffectual projects, while the true needs of the population go unmet.

If you think I'm exaggerating, consider Bosnia, a relatively prosperous country with a good education system before 1991, into which tens of billions of dollars of international aid have been poured, without any sign of having created a viable economy. The reason for this is quite simple: The international aid agencies, bound by their own agendas, paid little attention to the needs of the Bosnians themselves. In every other country that broke away from the former Yugoslavia, one of the first orders of business was to provide a mechanism to restore to the populace their foreign currency savings, which had been expropriated by the Yugoslav National Bank in 1991, and used to fund the Serbian war machine. Once this had been done, new business formation and the restoration of a functioning economy were once again possible, since these savings were of course the main source of small-business financing. In Bosnia, the problem was ignored by the aid agencies, and by the government they controlled, and the small business sector is consequently notably absent from the current Bosnian economic scene.

The central problem in all the above schemes for spending Iraq's oil revenues is that they depend on a central Marxist fallacy: that the oil under a country, and the oil production issuing from the country, are rightfully the property of that country's government.

This is equivalent to nationalizing the U.S. semiconductor industry, on the grounds that the U.S. government had provided for the education of William Shockley and his successors who invested in the various devices involved. The principle makes no sense economically; still more does it make no sense morally.

In economic reality, there are two groups of people who have a right to the revenues from Iraq's oil industry: the oil companies that developed it, and the owners of the land under which the oil was discovered. In the event that private-property rights were undeveloped in the region when the oil was found, the latter ownership devolves, not on the Iraqi government, but on the Iraqi people themselves.

The majority of Iraq's oilfields were developed by the Iraq Petroleum Corp., a consortium founded in 1925, and owned by British Petroleum (23.75 percent), Shell (23.75 percent), Compagnie Francaise des Petroles (23.75 percent), ExxonMobil (23.7 percent, between the two constituent companies), and the late Nubar Gulbenkian, the famous "Mr. Five Percent" wheeler dealer, owner of that percentage of the company. IPC was partially expropriated in 1964 and fully nationalized in 1972, the latter by a government of which Saddam was already the guiding figure.

There would thus seem no reason to recognize the expropriation, and every reason to return the operation of the oilfields to the British, Anglo-Dutch, French, U.S., and Portuguese (the Gulbenkian Foundation, domiciled in Lisbon) entities whose rights were so brutally overruled by Saddam's thugs. The Iraq National Oil Company, a corrupt tool of the Saddam regime, can legitimately be cut out of the business.

It is also however clear, through examination of current operating agreements in the oil industry, that the great majority of the oil revenues, perhaps 75 percent to 80 percent, should accrue to the landholders, in this case (subject to any well-founded title claims by individuals on particular oil fields) to the Iraqi people as a whole — not to the government. By ensuring that oil revenues accrue to individual Iraqis, not to their government, the coalition can provide the Iraqi people with a huge tangible benefit from the invasion, and spread the money widely enough so that any funding for terrorism or a military machine is insignificant.

The requirement therefore is for a fund that holds the money, and that contains individual accounts in the name of the Iraqi people, who derive benefit from their holdings and have at least some degree of control over the way the money is invested. Fortunately, there is an excellent model for such an entity: Singapore's Central Provident Fund, with currently 2.9 million members and assets of $45 billion.

The CPF was set up initially in 1955, but its growth dates from 1968, when by a provision of Singapore law a percentage of every employee's salary (currently 20 percent paid by the employee plus 16 percent paid by the employer) up to SGD 6,000 ($3,000) per month is paid into the fund, to accrue in solid investments and pay for the employee's future retirement, health and later housing (by means of home mortgage withdrawal) needs. The fund's investments are managed by trustees, who provide "a fair market return at minimal risk" which is linked to bank deposit rates. However, fund members may also choose their own investment vehicles from an approved list for their accrued fund balances.

Iraq's short-term potential oil production is around 2.5 million barrels per day, with the possibility of an increase to 3.5 billion barrels per day within 3-5 years from investment in new fields. At an oil price of $25 per barrel, with 80 percent of oil revenues devoted to the fund, an Iraqi CPF would have initial revenues of $18.25 billion per annum, or $760.42 for every Iraqi man, woman and child. In addition, going forward, a portion of employed Iraqi's earnings, maybe 10 percent, could be added to his account in the fund.

Over a period of years, as the fund's revenues and assets grew, this should prove sufficient to provide the Iraqi people with basic retirement, health and unemployment benefit needs, as well as educational services for Iraq's children. It would best be managed by the staff of Singapore's CPF, who have 35 years experience in running this type of scheme, and are as far as humanly possible incorruptible (Singapore ranked fifth-lowest in the world, after three Scandinavian countries and New Zealand, in Transparency International's most recent annual corruption rankings.)

By instituting an Iraqi CPF, with individual accounts, funded by the oil revenues, and managed by staff of the Singapore CPF, the coalition would over a 2-3 year period allow the Iraqi people to develop an asset over which they had (if they wished) individual investment control, which would fund their basic social-program needs. The new Iraqi government, in turn, would have to depend on non-oil sources, such as sales and income taxes on the Iraqi people for its revenues. It would thus be relatively impoverished, but would also have no need to provide basic social security, health, or education services for its people. With at most 10 percent of Iraq's GDP under its control, it would be unable to afford expensive military adventures, would have very limited control over the Iraqi economy, and relatively few and minor avenues for serious corruption.

An Iraqi people who had their basic social security, health, and education needs taken care of by a Central Provident Fund managed by incorruptible and capable Singaporeans, and whose government was modest and not very corrupt, would be the happiest polity in the unhappy Middle East. That, at least, is something worth fighting for.

— Martin Hutchinson is business and economics editor at United Press International. This piece was originally written for UPI and is reprinted with permission.

War Reports By Michael Lelyveld

Oil prices are swinging wildly on reports about the war in Iraq, but analysts say that world-market fundamentals remain unchanged. As the United States emerges from the winter heating season, producing countries like Iran remain wary of pumping too much, while the U.S. Department of Energy sees no cause to tap the Strategic Petroleum Reserve.

Boston, 26 March 2003 (RFE/RL) -- Experts say big swings in oil prices may mean little from one day to the next during the Iraq war. Last week, prices plunged on the expectations of a short war, only to rebound this week as perceptions grew more wary. But analysts are dismissing both moves as trading turbulence that will have little effect on the world economy over time.

Ira Joseph, director of the international energy group at PIRA Energy in New York, told RFE/RL, "Anything that happens inside of a week isn't going to affect the fundamentals."

Much like the stock market, oil trading is driven by daily news that may be quickly overtaken by events. But economic expectations in both oil-producing and -consuming countries are often swept up in conclusions that soon prove to be wrong.

While consumers fear a wartime price spike, producers like Russia and Iran are worried that high oil output could devastate prices as soon as the war ends, leaving their economies with no means of support. Between the extremes, daily trading is driving the cost up and down on assumptions that may have little grounding in fact but still cause concerns.

In the first days of the conflict last week, world oil prices dropped suddenly by more than 25 percent to well below $30 per barrel for the first time since January as the market welcomed the end of the long wait for war.

Early this week, prices rebounded by more than $2 per barrel on speculation that the war could drag on. Ethnic clashes in Nigeria, leading to the loss of some 40 percent of the country's production, added to the higher price push. But yesterday, prices stalled again following British television reports of an uprising in Basra against Iraqi President Saddam Hussein, the Reuters news agency said.

Joseph said the fundamental forces behind oil prices remain the same as they did before any of the price swings. "People are just playing around with the bubble -- the war premium," Joseph said.

Joseph said the market has added a premium of about $5 per barrel to oil prices because of the war-related risks. That factor is now serving as an open field for price jumps that may be driven by daily news, rumors, or speculation, temporarily masking the fundamentals of supply and demand.

Joseph sees very low U.S. oil inventories at the end of a cold winter providing basic support for higher prices. At the same time, the second quarter is usually a time of weaker demand because the heating season is ending and warm-weather travel has yet to begin, said Robert Ebel, director of the energy and national-security program at the Center for Strategic and International Studies in Washington.

Ebel was asked whether anything has really changed in the oil market since the war started. He said, "Probably not, when you're just talking about the fundamentals."

While the trouble in Nigeria is causing traders to worry, the loss to the world market has been offset by the partial return of Venezuela's production from its civil unrest. The disappearance of Iraqi oil from the market due to the war and the end of the United Nations oil-for-food program was anticipated. Higher output from Saudi Arabia has made up the difference.

The biggest moderating factors on oil prices in the midst of the war are still Saudi Arabia's pledge to pump more as needed and the ultimate backstop of the U.S. Strategic Petroleum Reserve, which could release nearly 600 million barrels of oil. This week, the U.S. Energy Department repeated that it sees no need for such a move at this time.

Ebel said, "I think that we have an understanding with Saudi Arabia that we won't tap into the Strategic Petroleum Reserve as long as they keep expanding production." So far, the balance seems to be keeping the volatile markets within bounds, despite the war risks.

The wartime speculation has still made the oil market treacherous. Ebel said, "Forecasts are usually tenuous at best, and now, you know you're going to be wrong."

Posted on Wed, Mar. 26, 2003 By ERIC PALMER The Kansas City Star

A Kansas City economist set out Tuesday to answer the pressing question: What will the war with Iraq mean for the region's economy?

His conclusion: It depends.

If the war with Iraq ends quickly, the Kansas City area can expect economic growth of just under 2 percent in the first half of this year, but double that by year's end.

If the war is prolonged and oil prices remain high, the rate of growth in gross regional product will be reduced by 2 percentage points over the next 12 months, economist Frank Lenk told about 300 people attending the midyear economic forecast of the Greater Kansas City Chamber of Commerce.

Instead of adding 26,000 jobs, as seen under a short-war scenario, a long war would mean the economy would add only 8,000 jobs between now and the first quarter of 2004. If the war persists, however, 6,000 of those new job gains would disappear by the end of 2004.

"Most people believe in the short-war scenario," said Lenk, director of research services for the Mid-America Regional Council. "But even a short war will incur real economic costs. The resilience of the economy, however, means a short war will delay the economic recovery, not derail it."

The economic forecast, held at the Hyatt Regency Crown Center hotel, updated economic projections for the year that had been made in September. The war with Iraq was not factored into the earlier forecast.

Assuming a short war, Lenk projected that all sectors of the local economy, except government, will add jobs. Services should add 13,000 jobs and retailers would add 5,000 jobs between the first quarters of 2003 and 2004. Even manufacturing is expected to gain close to 3,000 jobs, bringing it back to levels last seen in 2001, he said.

In addition to Lenk's projections, a panel discussed what the war will mean for the Kansas City economy.

Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, said he believed the war wouldn't be dragged out. He said he expects national economic growth of 2 percent to 2.5 percent in the current quarter and about 4 percent by 2004. The Kansas City area economy should closely follow the national economy, he said.

"Fiscal policy has been stimulative. We have had one tax cut, and another is on the table," Hoenig said. "That puts money into the pockets of consumers. Monetary policy has been accommodating, with short-term interest rates at 40-year lows."

The local economy's fundamentals are generally favorable for economic recovery, Hoenig said, with business inventories at historic lows, suggesting there is some pent-up demand for businesses to buy.

Consumers are pulling back somewhat on their spending and have a high debt level, Hoenig noted. But interest rates are so low that the cost of handling that debt is manageable.

Hoenig declined to predict whether the Federal Reserve will further cut interest rates in coming months.

As the war proceeds, it will be easier to sort out its effects on the economy from other factors, Hoenig said.

One of those other factors is the health of other economies with which the United States is intertwined, Hoenig said.

Japan's economy has been weak for a decade, Europe is having slow growth, and there are trouble spots in South America, like Venezuela, from which the U.S. gets a significant amount of its oil.

On balance, though, Hoenig said he sees a lot of opportunity for growth locally.

The current world risks create a greater need for vision and flexibility in U.S. business executives, said Bill Eckhardt, professor of law at the University of Missouri-Kansas City. Eckhardt is a retired colonel who taught military law and litigated in military courts for 30 years.

Executives, like their counterparts in many parts of the world, must learn to factor threat and risk into their economic planning, Eckhardt said. And as a country, we must not let such risks keep us from being a bold country.

"I don't know how we collectively face our fears, but we must not just hunker down," Eckhardt said.

To reach Eric Palmer, regional business editor, call (816) 234-4335 or send e-mail to epalmer@kcstar.com.

March 26, 2003 European Briefing by Carl Mortished

BRITAIN is not fighting a war for Iraqi oil, which is a great pity, because it would be a good thing if we did.

We should take the oil and give it to the Iraqi people. Take it from the bureaucrats, deny it to the multinationals and give it away. In so doing, we should end decades of stagnation and nationalisation and begin the process of ending the oil dependence of the nations of the Middle East.

The anti-war protesters, complete with their “Stop Esso” banners, have got it partly right but mostly wrong. They hate the idea of war for profit but, in the end, the issue is not whether profit is earned but by whom.

It is not just the young, gentle and liberal who worry about the link between war, profit and oil. Hands are wringing in the boardrooms of European oil companies. BP, Shell and TotalFinaElf are watching with anxiety as US marines open a path for Boots & Coots, the American oil firefighters. Will there be an open tender for oil concessions? Will ExxonMobil and ChevronTexaco win all the prizes? What about our share?

TotalFinaElf is in a bit of a flap. Over in Paris, the media-shy French company finds itself, again, in the front line. A workaday sort of company, Total once happily left the political limelight to its flamboyant and corrupt sister company, Elf. Since the clean-up at Elf and its subsequent merger with Total, the troubles have come thick and fast. First, there was the fouling of Brittany’s beaches by the oil tanker Erika, then a nasty explosion in a fertiliser plant in Toulouse that left 29 dead.

Today, Total finds itself a punching bag for every insecure American with a grudge against the French. Even the normally sedate Wall Street Journal has joined in, bashing the oily frogs. In an editorial entitled “A war for France’s oil”, the newspaper accused the French of undermining sanctions against Saddam in its pursuit of oil production contracts in Iraq.

The accusation is a little disingenuous because the so-called Total contracts — these cover two monster oilfields, Majnoon and Nahr Umar, believed to contain about 30 billion barrels — are today hardly worth a fig.

Total knows its interests are at risk, hence the anxiety and frequent protestations that the Americans must ensure fair play. Total signed nothing of merit. Had it done so it would have been in breach of UN sanctions. Were a future Iraqi government to deny Total, the French firm would have trouble claiming damages without admitting the existence of a deal that flouted the UN rule.

But the French will probably recover something for their pains. After all, Total was an investor in Iraq before anyone else. Its predecessor, Compagnie Française des Petroles, discovered oil at Kirkuk in 1927.

And even if the hawks in Washington scream for vengeance, the oilmen in Houston are more pragmatic. Total has knowledge, and for that ExxonMobil will be happy to deal.

Tease attracts the horsemen

THEY have interests in common. The four horsemen of the Apocalypse — ExxonMobil, BP, Shell and TotalFinaElf — are riding hard to the Middle East because they must if they are to survive.

The multinationals are struggling to raise their game. Of the four horsemen, only Total is raising its oil output significantly. ExxonMobil has stagnated for several years. The reason is simple; outside of the Middle East, the easily accessible oil is gone. The North Sea is in decline, as is Alaska. Oil companies are now forced to spend huge sums getting oil in dangerous locations, sometimes in water depths of several kilometres.

The Gulf is a tease. According to BP’s figures, the region accounts for 65 per cent of the world’s known reserves but only 29 per cent of global production. You may think that ExxonMobil is the world’s biggest oil company, but in terms of output, it is Saudi Aramco. State oil companies, includng Aramco, Iran’s NIOC, Pemex of Mexico and PdVSA of Venezuela are the true four horsemen while Exxon ranks only fifth, according to the Centre for Global Energy Studies.

It rankles. Ever since they were chucked out by Arab nationalists in the 1970s, the multinationals have been clamouring to get back in. Producing oil from Arabian desert sands is a lot cheaper than west of the Shetlands and a lot safer.

But the door remains shut apart from a few crumbs distributed by Iran in the form of buybacks, a sort of oil contracting, in which the foreign investor is paid a fixed return for production. Desperate for alternatives to Opec, Washington has lobbied Nigeria, hoping to lure the oil producer from the cartel, but to no avail.

It is highly unsatisfactory on all sides. Exxon, BP, Shell and Total are running out of growth opportunities, but the Gulf state producers have failed to deliver prosperity. The oil cash has been squandered and the Gulf countries, including Iraq, remain passive rent collectors, slaves to the volatile oil price, offering no future to their citizens.

Make the Iraqis shareowning Sids

THERE is an alternative. The privatisation of Russia’s oil industry seemed, then, an embarrassing shambles. The Government gave shares in oil producers to banks in exchange for loans and a small band of ruthless men became very rich indeed. But the Russian industry thrives today, output is growing and oil cash is starting to be recycled into other industries.

Russian companies, such as Lukoil, have their fingers in Iraq, but there are other parallels. The Iraq National Oil Company (INOC) is really three companies –– northern, southern and central units.

We should insist that there be no sweetheart deals with Exxon and that the Total “contracts” be shredded. Instead, each man, woman and child in Iraq should be given three pieces of paper representing a share in three Iraqi oil companies.

Rough calculations based on the discounted value of 30 years of future production, suggest the shares might be worth $15,000 (£9,500) to each Iraqi. That could be underwritten by the Government to ensure no exploitative Russian-style share robbery took place.

With just a shuffle of paper, each Iraqi Kurd, Sunni and Shia Arab would have the capital to set up a small business, an empowerment of untold proportions. Of course, there would be shenanigans and even Iraqi oil oligarchs. Some thug from Tikrit might one day even buy his way on to the board of the Royal Opera House. A small price to pay.

 carl.mortished@thetimes.co.uk