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As the USA moves closer to war with oil-rich Iraq (news - web sites), gas prices are on the rise. So are concerns about terrorist attacks that might involve radiological materials available from widespread sources. In addition to tackling these pressing concerns, the Bush administration has proposed spending $1.7 billion over five years to start developing hydrogen fuel cells that could power cars, eventually eliminating U.S. dependence on foreign oil. Energy Secretary Spencer Abraham (news - web sites), the administration's point man on these issues, met this week with USA TODAY's editorial board. His comments were edited for space and clarity:

Question: A USA TODAY poll found that 66% of Americans believe oil companies are overcharging. What is your view?

Answer: The average price of gasoline is about 10 cents higher this winter than the winter two years ago. The strike in Venezuela has constrained supply. The economy in comparison to last year is stronger, so demand is greater than it was a year ago. The reduction in production from OPEC (news - web sites) on several occasions in recent years has affected supply. And uncertainties about what is going to happen in Iraq have fueled a lot of speculation in terms of price in the energy markets. All that having been said, we do not want to see people exploited. The Energy Department has a hot line available to anyone who wants to report evidence of price gouging. The Federal Trade Commission and others are monitoring. We should always be vigilant. These high prices hurt average working families, and we are concerned about them.

Q: How do you fend off charges that a war with Iraq would be an oil grab?

A: That is blatantly untrue. Our concerns have nothing to do with oil. We believe the oil in Iraq belongs to the people of Iraq. They should decide how much of it is sold and what the proceeds should go for.

Q: There is increasing concern about terrorists getting a nuclear or radiological weapon. What is being done to prevent that?

A: One reason we focus so much attention on Iraq is the concern that a nuclear weapon or radiological material could be used by Saddam Hussein (news - web sites) or conveyed to terrorists for their use. We also have worked with Russia for a long time -- very intensely since 9/11 -- to secure such materials in the former Soviet Union. We've reduced by about two years the time frame for securing the materials our department works on. The other challenge, radiological dispersal devices, is a big one because the material that could be employed in that type of a weapon is available in almost every country. I've been concerned about this for quite some time. Next week, there's a conference in Vienna of about 600 representatives from about 100 countries that will focus on this threat and give people a better understanding of ways to account for and secure these materials.

Q: What is the long-term solution to our energy challenges?

A: Because of his background in the world of energy, the president has a pretty strong understanding of the challenges ahead. He asked us for game-changing technologies and approaches, and we took that seriously. Our idea is a hydrogen-fuel-cell powered vehicle. Instead of trying to design the vehicle itself, our focus will be on operating systems that can be applied to the kinds of vehicles that Americans desire to drive, rather than what Washington might think consumers should have. At the same time, we faced a chicken-egg sort of challenge: What comes first, the operating system -- the vehicle -- or the infrastructure to support it? We concluded you have to do these concurrently, not consecutively. If you don't, it'll always be 30 years before we have a hydrogen-fuel-cell motor-vehicle fleet. If we move them together, we believe a commercialization decision would be made as early as 2015 that would translate into mass-market penetration in showrooms by the year 2020. We are very serious about this commitment.

Q: What are the advantages?

With a hydrogen-fuel-cell powered fleet, we wouldn't have to import oil. We would produce the fuel from a variety of sources here at home. There would be a lot of other applications. And the great thing is that the only byproduct is water. If we can get to that point, we will surmount both how we deal with our growing dependency on energy and how we can continue to allow consumers to have choice and continue to grow the economy in a way that is consistent with environmental concerns.

Q: How do you respond to critics on the right who see this as a misguided policy?

A: This has managed to create some unusual coalitions in opposition. The role we project for the government is perfectly legitimate, given the stakes and the potential payoff. First, we will fund the high-risk research the private sector cannot justify because it's so long-term. The other thing that makes the federal role so indispensable is the real need for coordination to bring everybody to the table. But we're not going to mandate and dictate, we're not going to pick the cars, we're not going to do the sorts of things that are within the venue of the private sector.

Q: Does this put all your eggs in one very expensive basket?

A: No. Hybrid-technology, clean-diesel, hydrogen-powered internal combustion engines all have a role to play here. But they all require oil to work, and our goal is to transcend that debate at some point. Where the game could be changed is in moving beyond oil-based operating systems, or oil-focused ones, to ones in which the source is hydrogen. And we think we've got an approach that can make that happen. But we by no means put all our eggs in that basket.

www.bday.co.za

It is a common mistake to underestimate the importance of ideology, or political values, in US foreign policy

ANTIWAR demonstrators in the US and Europe wave "No blood for oil" placards. But oil is only a background factor in the conflict. It is true, of course, that if Saddam Hussein were not sitting on 11% of the world's oil reserves and within striking distance of much of the rest, there would be less western concern about him. Questions of long-term supply and price are of vital interest to the western world, but it does not follow that the war is being fought on behalf of "big oil". Notwithstanding the personal connections of senior US politicians to the oil sector, it is oil consumers, not oil producers, that matter. And even they are just one factor in the Iraq conflict.

The Middle East is now more important than ever to the US because it exports terrorism as well as oil. And the US administration's main motive is roughly what it says: to pre-empt the possibility of weapons of mass destruction being used by a man with a proven record of hostility to the US.

It is a common mistake to underestimate the importance of ideology, or political values, in US foreign policy. These factors trumped commercial considerations during the Cold War, when successive US administrations were far stricter in curbing trade with the Soviet Union than the Europeans. In 1978, for instance, Jimmy Carter tightened export controls on the sales of US oil and gas technology to the Soviet Union, in protest against Moscow's treatment of its dissidents. He delayed a $144m contract by Dresser Industries of Texas to sell oil drill-bit technology to the Soviet Union. Carter reacted to the Soviet invasion of Afghanistan by restricting US grain sales to Moscow in 1980.

Ronald Reagan reversed this ban a year later, but then went on to ban any US involvement in building a Soviet gas pipeline to western Europe. This lost Caterpillar of the US a contract that went to Komatsu of Japan. Reagan tried to extend the boycott to European companies but encountered Margaret Thatcher's resistance.

The same pattern has been evident since the Cold War, and the US oil industry has borne much of the commercial brunt. Despite having two former oilmen in the White House the president and vice-president US oil companies have failed to get the administration to relax the ban on their investing in Libya and Iran. The oil lobby proved no match for the proIsrael groups that got US sanctions on Libya and Iran retained. Those sanctions prevent US companies from buying Libyan or Iranian oil.

The situation with Iraqi oil imports into the US is different. It is Iraq that refuses, in theory, to sell oil to the US, except to one Houston trader that it considers friendly.

In fact, Baghdad knows that Iraqi oil reaches the US in large quantities, via middlemen. Last summer there was a move by some congressmen to put Iraq on the same footing as Iran and Libya by banning purchases of its oil too. But the administration argued that denying Iraq the US market would undermine the United Nations (UN) oil-for-food programme, and penalise the Iraqi people. It thus put itself in the odd position of insisting on buying oil from a country it is planning to attack.

Part of the reason for this contortion is that Iraqi oil is popular with US refiners on grounds of quality and price. The US, which is both the world's largest consumer and importer of oil, has an interest in high quality and low price. That interest means that it wants to reduce the power of Opec, the Middle East- dominated producers' cartel that has Iraq as one of its 11 members.

The US has been encouraging non-Opec producers like Russia and countries around the Caspian to increase output and make up for declines in mature oil basins like the North Sea and Alaska.

The big oil reserves are, however, still in the Middle East, which is dominated by Opec. Some in Washington see a chance in a post-Saddam Iraq to weaken Opec further.

What might Saddam do to the oil market if left to his own devices?

"In 1990 the fear was that, having invaded Kuwait, he would head for the eastern province of Saudi Arabia, or at least would intimidate all his neighbours and so dictate Opec policy," says Raad Alkadiri of the PFC Energy consultancy in Washington.

Such speculation was fuelled by Saddam's diatribes against the "throne dwarfs" heading the Gulf state monarchies.

There is no doubt that Saddam would use oil as a political weapon if he could. He tries to do so even in his weakened state. Last April, for example, he stopped all Iraqi exports in protest against Israel's actions in the occupied territories albeit with minimal effect on the oil price.

From the oil industry perspective, the worst scenario would be a strike by Iraq on Ras Tanura, the main Saudi oil-loading port. A more plausible scenario is that, if facing defeat by the US, Saddam might destroy his own oil wells. His army set fire to about 700 wells during its 1991 retreat from Kuwait. To guard against this happening in Iraq, the Pentagon has been planning to take rapid control of Iraq's 1500 oil wells in the event of war.

Assuming that Iraq's oil fields are not destroyed, what will the US want to do with the Iraqi oil industry, if and when it gets hold of it? Colin Powell says: "It will be held in trust for the Iraqi people, to benefit the Iraqi people. That is a legal obligation that the occupying power will have."

Grabbing Iraq's oil for itself would be counterproductive for the US. It would probably raise the oil price and therefore the cost of all other US oil imports. Iraqi production is now about 2,5-million barrels a day, less than a third of the 9-million barrels the US imports daily.

But the US would want to see Iraqi output increased, as would any postSaddam regime in Baghdad. And there is no doubt it can be increased.

Partly due to UN sanctions, which restrict the import of oil equipment, only 24 of Iraq's 73 oil fields are working at present. Removal of sanctions would lead to a scramble by foreign oil companies for licences to start developing new fields. In theory, the companies (notably Lukoil of Russia and China National Petroleum Corporation) that have signed, although not implemented, contracts, and the companies (notably TotalFinaElf of France) that have just conducted preliminary negotiations, would be in pole position to get such licences. But the Iraqi opposition has said that it may nullify all contracts made with the Saddam regime.

Would a pro-US Iraqi government or a US military governor go as far as handing all foreign oil contracts to US companies? It is hard to imagine Washington getting away with such favouritism even if it has fought a war largely on its own. For one thing, it would be difficult to decide whom to favour. BP, for instance, is now the largest oil and gas producer in the US, and its CE, John Browne, has made clear his company should be included in any distribution of Iraqi spoils. For another, it could cause a row with Russia. The Russian government has a major stake in preserving a commercial relationship with Iraq. Iraq still owes Russia an estimated $8bn from the Soviet era, which may be most easily recoverable in the form of oil.

One option being discussed by some people around the Bush administration is privatisation of the Iraqi oil industry. This would go beyond granting foreign oil companies licences to develop new fields and would include selling shares in the state Iraqi National Oil Company, which now pumps all of Iraq's oil. One supporter of this is Fadhil Chalabi, a former Iraqi oil ministry official, now based in London. "Partial privatisation would promote efficiency. But it would be hard to sell politically, because Iraqis feel very nationalist about their oil," he says.

Privatisation, however, could indirectly serve the US goal of weakening Opec. It is most unlikely that even a pro-US puppet regime in Baghdad would take Iraq out of Opec; such a move would be very hard to sell to its own citizens and neighbours. But the more Opec governments invite foreign oil companies in, the more the latter push the former to bust their production quotas. This is happening in three Opec members Nigeria, Algeria and Venezuela (before the current strike) which are all trying to persuade the rest of the cartel that they must have higher relative quotas.

Creating such pressures inside Iraq, through privatisation, might modestly increase world oil supplies and bring down the oil price.

"It might lessen US dependence on Saudi Arabia. And if it were to bring the oil price (now around $30 a barrel) into the teens, then this might force Arab oil-producing governments to open up politically and economically," says Alkadiri.

Underlining, again, that the US game is as much political as it is commercial.

Buchan is former energy correspondent and now editorial writer for the Financial Times. This article first appeared in the March edition of Prospect magazine.

Mar 06 2003 07:16:52:000AM David Buchan Business Day 1st Edition

www.usatoday.com

As the USA moves closer to war with oil-rich Iraq, gas prices are on the rise. So are concerns about terrorist attacks that might involve radiological materials available from widespread sources. In addition to tackling these pressing concerns, the Bush administration has proposed spending $1.7 billion over five years to start developing hydrogen fuel cells that could power cars, eventually eliminating U.S. dependence on foreign oil. Energy Secretary Spencer Abraham, the administration's point man on these issues, met this week with USA TODAY's editorial board. His comments were edited for space and clarity:

Question: A USA TODAY poll found that 66% of Americans believe oil companies are overcharging. What is your view?

Answer: The average price of gasoline is about 10 cents higher this winter than the winter two years ago. The strike in Venezuela has constrained supply. The economy in comparison to last year is stronger, so demand is greater than it was a year ago. The reduction in production from OPEC on several occasions in recent years has affected supply. And uncertainties about what is going to happen in Iraq have fueled a lot of speculation in terms of price in the energy markets. All that having been said, we do not want to see people exploited. The Energy Department has a hot line available to anyone who wants to report evidence of price gouging. The Federal Trade Commission and others are monitoring. We should always be vigilant. These high prices hurt average working families, and we are concerned about them.

Q: How do you fend off charges that a war with Iraq would be an oil grab?

A: That is blatantly untrue. Our concerns have nothing to do with oil. We believe the oil in Iraq belongs to the people of Iraq. They should decide how much of it is sold and what the proceeds should go for.

Q: There is increasing concern about terrorists getting a nuclear or radiological weapon. What is being done to prevent that?

A: One reason we focus so much attention on Iraq is the concern that a nuclear weapon or radiological material could be used by Saddam Hussein or conveyed to terrorists for their use. We also have worked with Russia for a long time — very intensely since 9/11 — to secure such materials in the former Soviet Union. We've reduced by about two years the time frame for securing the materials our department works on. The other challenge, radiological dispersal devices, is a big one because the material that could be employed in that type of a weapon is available in almost every country. I've been concerned about this for quite some time. Next week, there's a conference in Vienna of about 600 representatives from about 100 countries that will focus on this threat and give people a better understanding of ways to account for and secure these materials.

Q: What is the long-term solution to our energy challenges?

A: Because of his background in the world of energy, the president has a pretty strong understanding of the challenges ahead. He asked us for game-changing technologies and approaches, and we took that seriously. Our idea is a hydrogen-fuel-cell powered vehicle. Instead of trying to design the vehicle itself, our focus will be on operating systems that can be applied to the kinds of vehicles that Americans desire to drive, rather than what Washington might think consumers should have. At the same time, we faced a chicken-egg sort of challenge: What comes first, the operating system — the vehicle — or the infrastructure to support it? We concluded you have to do these concurrently, not consecutively. If you don't, it'll always be 30 years before we have a hydrogen-fuel-cell motor-vehicle fleet. If we move them together, we believe a commercialization decision would be made as early as 2015 that would translate into mass-market penetration in showrooms by the year 2020. We are very serious about this commitment.

Q: What are the advantages?

With a hydrogen-fuel-cell powered fleet, we wouldn't have to import oil. We would produce the fuel from a variety of sources here at home. There would be a lot of other applications. And the great thing is that the only byproduct is water. If we can get to that point, we will surmount both how we deal with our growing dependency on energy and how we can continue to allow consumers to have choice and continue to grow the economy in a way that is consistent with environmental concerns.

Q: How do you respond to critics on the right who see this as a misguided policy?

A: This has managed to create some unusual coalitions in opposition. The role we project for the government is perfectly legitimate, given the stakes and the potential payoff. First, we will fund the high-risk research the private sector cannot justify because it's so long-term. The other thing that makes the federal role so indispensable is the real need for coordination to bring everybody to the table. But we're not going to mandate and dictate, we're not going to pick the cars, we're not going to do the sorts of things that are within the venue of the private sector.

Q: Does this put all your eggs in one very expensive basket?

A: No. Hybrid-technology, clean-diesel, hydrogen-powered internal combustion engines all have a role to play here. But they all require oil to work, and our goal is to transcend that debate at some point. Where the game could be changed is in moving beyond oil-based operating systems, or oil-focused ones, to ones in which the source is hydrogen. And we think we've got an approach that can make that happen. But we by no means put all our eggs in that basket.

abcnews.go.com March 5

— LONDON (Reuters) - World oil prices fell on Wednesday as France and Russia warned the United States that they could use veto powers to stop a United Nations resolution authorizing war on Iraq.

The two countries issued a joint statement with Germany after a meeting in Paris at which they also called for accelerated weapons inspections in an attempt to prevent an attack on the world's eighth largest oil exporter.

International benchmark Brent crude oil fell 19 cents to $32.90 per barrel, while U.S. crude futures dropped 54 cents to $36.35.

"There has been a distinct lack of buying since France, Russia and Germany said they would not support a war," said Christopher Bellew of brokers Prudential-Bache International.

"It's a fickle market and will probably go back up again because we do seem to be sliding toward war," he added.

The prospect of a war comes at a time when crude stocks in the United States are hovering at their lowest levels since the mid-1970s.

U.S. government data showed crude oil stocks recovered somewhat last week, countered by a fall in heating oil and gasoline inventories.

"While this would appear to be a positive report for prices, the market has become accustomed to much larger (stock) draws," said Lawrence Eagles of brokers GNI-Man.

U.S. crude has swung in a wide range of $5 over the last week since touching a 12-year high of $39.99 on Feb. 27. It is still 20 percent above where it started the year.

Heating oil shortages in the U.S. northeast have worsened fears of a supply crunch in the world's top consumer.

On top of a crippling oil strike in Venezuela, which normally supplies 13 percent of U.S. imports, traders fear war in Iraq may disrupt exports from other countries in the Middle East, which account for 40 percent of world exports.

OPEC REASSURES

OPEC exporters have said they can cover any shortfall if an attack on Iraq disrupts its exports of roughly two million barrels per day.

But traders and analysts say that most members of the Organization of the Petroleum Exporting Countries are already pumping at full tilt and have little spare capacity outside the world's top producer Saudi Arabia.

"We're looking for crude to move above $40 when the attack is launched on Iraq. Even if OPEC does increase production we still see supplies remaining tight," said Tetsu Emori, chief strategist at Mitsui Bussan Futures in Tokyo.

The United States ordered 60,000 more troops into the Gulf region on Tuesday in its preparations for a military strike on Iraq, which it says is not in full compliance with U.N. demands to disarm chemical and biological weapons.

The United States and Britain have already amassed a 250,000-strong force in the region.

U.S. preparations hit a snag at the weekend when Turkey's parliament voted against the deployment of U.S. troops on its soil, which would have given access to northern Iraq.

Turkey's powerful armed forces backed a tentative government move to submit a fresh motion to parliament allowing U.S. troops into the country.

www.msnbc.com

LONDON, March 5 — World oil prices rose on Wednesday on concerns that weekly U.S. government data due out later in the day would show further tightening of heating oil supplies as Washington built up troops for war on Iraq.        BROKERS SAID another bombing in the Philippines injected fresh uncertainty into the market along with news that Russian business people were leaving Iraq.        International benchmark Brent crude oil rose 36 cents to $33.45 per barrel, while U.S. crude futures gained 34 cents to $37.23.        “Although there is no direct link with the Philippines and oil, people are taking the bombings as an overall rise in terror tensions and an area of concern,” said analyst Lawrence Eagles at brokers GNI-Man in London.        “News that Russian families are pulling out of Iraq has also raised expectations of a step closer to war. But the U.S. data will dominate today,” he said.        Police said a home-made bomb exploded in a southern Philippine city on Wednesday, a day after a bomb attack killed 21 people at an airport to the east. Military officials blamed Tuesday’s attack on the Muslim separatist group the Moro Islamic Liberation Front, but it denied involvement.        U.S. crude has swung in a wide range of more than $4.50 over the last week since touching a 12-year high of $39.99 on Feb. 27, and is still 20 percent above where it started the year.        The prospect of a war in oil exporter Iraq comes at a time when crude stocks in the United States are hovering at their lowest levels since the mid-1970s.        Heating oil shortages in the northeastern United States have also raised fears of a supply crunch in the world’s top consumer.        The U.S. government will release later on Wednesday its weekly stocks report, and analysts expect crude supplies to rise while winter heating oil stocks fall.        On top of a crippling oil strike in Venezuela, which normally supplies 13 percent of U.S. imports, traders fear war in Iraq may disrupt exports from other countries in the Middle East, which account for 40 percent of world exports.         OPEC REASSURES        OPEC exporters have said they can cover any shortfall if an attack on Iraq disrupts its exports of roughly two million barrels per day. But traders and analysts say that most members of the Organisation of the Petroleum Exporting Countries are already pumping at full tilt and have little spare capacity outside the world’s top producer Saudi Arabia.        “We’re looking for crude to move above $40 when the attack is launched on Iraq. Even if OPEC does increase production we still see supplies remaining tight,” said Tetsu Emori, chief strategist at Mitsui Bussan Futures in Tokyo.        The United States ordered 60,000 more troops into the Gulf region on Tuesday in its preparations for a military strike on Iraq, which it says is not in full compliance with U.N. demands to disarm weapons of mass destruction.        The United States and Britain have already amassed a 250,000-strong force in the region.        U.S. Secretary of State Colin Powell said Washington was gaining support for a United Nations resolution backing war, but opponents France, Russia and Germany met in Paris to coordinate their opposition.        Some 150 members of Russia’s business community in Iraq were flying out of the country on Wednesday, the Interfax news agency quoted a Russian diplomat in Baghdad as saying.        U.S. preparations hit a snag at the weekend when Turkey’s parliament voted against the deployment of U.S. troops on its soil, which would have given access to northern Iraq.        Turkey’s powerful armed forces backed a tentative government move to submit a fresh motion to parliament allowing U.S. troops into the country.        © 2003 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content is expressly prohibited without the prior written consent of Reuters.