www.arabnews.com By Ash Pulcifer

Most people are aware that oil will play a role in the Bush administration’s possible invasion of Iraq, but many do not quite understand how. The common assumption is that the US military will somehow "steal" Iraq’s oil. This is simply not the case.

The reason that oil plays a part in any future conflict with Iraq has to do with the amount of oil available on the free market. On the free market, whenever there is an increase in supply of a product, the price of that product generally decreases. Such is the hope of the Bush administration with regard to the price of oil should they remove Saddam Hussein from power.

Currently, Iraq is allowed to export some 2 million barrels of oil per day (bpd), which finds its way into the global marketplace; shortly after the Gulf War, Iraq’s oil exports were restricted as part of the United Nations oil-for-food program. Before the Gulf War began, Iraq was exporting 3.5 million bpd, meaning at least another 1.5 million barrels of oil were being released into the global marketplace each day as compared with 2 million bpd now. If Iraq were to once again rise to that level of exports, there would be more oil supply in the global market and this would cause a drop in oil prices.

The only way for Iraq to once again export 3.5 million bpd will be for the United Nations sanctions to end. Once the sanctions end, Iraq will be able to export oil at their full capacity as they did before the Gulf War. Because the United States and Britain believe strongly that the sanctions should remain in place until Saddam Hussein is removed from power, they have looked for other solutions to solve this problem of high oil prices. The Bush administration decided the sanctions were not succeeding in removing Hussein and it was time they just removed him themselves, putting their own friendly government into power and thus putting an end to the need for sanctions.

This is one of the central ideas behind the Bush administration’s wish for "regime change." High oil prices damage the economies of countries that are dependent on foreign oil, such as the United States. If oil prices were to dramatically drop, it would be as if a great weight had been lifted off the chest of the US economy, possibly leading to a global economic upturn. The positive result of "regime change" in Iraq to the US economy cannot be underestimated.

See, the Bush administration has far loftier goals in mind when it comes to Iraq. Maybe it’s because the central thinkers in the administration were at onetime involved in the oil industry: President Bush was a senior executive in Arbusto Energy/Bush Exploration oil company from 1978-1984, and the senior executive of the Harken oil company from 1986-1990; Vice President Cheney was the chief executive of the Halliburton oil company from 1995-2000; and National Security Adviser Rice was a senior executive with the Chevron oil company from 1991-2000. So this administration knows its oil. And because of that, they quite ambitiously say, "Why not increase Iraq’s oil capacity to a level higher than ever before, thus adding even more supply to the oil market?"

And that is what they intend to do. The new government that the US installs will want to increase production because that will result in more exports and thus more money for the Iraqi economy. But the only way to increase production is to incorporate Western technology into oil drilling practices. That’s where the American oil companies come in. The American oil companies will be needed to rebuild and update Iraq’s oil infrastructure in order to increase their oil output. This is why American oil companies are hoping that the war in Iraq will materialize. As we have seen, they have well placed friends in the administration and just might get what they want.

It is estimated by energy analysts that with the assistance of US oil technology, Iraq will be able to increase production to 5 million bpd. That is at least three million more barrels per day than they are exporting now. This will provide more supply to the oil market depressing oil prices, thus providing a relief to the US economy.

There’s no need to take my word for it. Bush’s former top economic adviser, Larry Lindsey, stated last fall: "When there is regime change in Iraq, you could add three million to five million barrels (per day) of production to world supply. The successful prosecution of the war would be good for the economy." Couldn’t be put simpler than that. Economists predict that after a successful Iraq invasion, the price of oil will drop from the current $30 — $34 a barrel to $15 to $20 a barrel; possibly a 50 percent decrease. The effects of this on the US economy, which is heavily dependent on oil, will be dramatic.

Of course, all of this will only become possible should the war in Iraq be a successful military and political operation. There are plenty of problems that can arise in the prosecution of the war that could cause an opposite effect, drastically increasing oil prices due to any instability in oil output from the Middle East. With the current crisis in Venezuela, a major exporter of oil to the United States, the Bush administration won’t have that much leeway in avoiding an economic disaster should their plans backfire.

Ash Pulcifer, a lifelong activist for international human rights, lives in the US. Ash finds it unacceptable that the world often turns its back to those less fortunate members of our species who are forced to endure poverty and civil strife. Ash Pulcifer encourages your comments: apulcifer@YellowTimes.org (YellowTimes.org)

Arab News Features 29 January 2003

ogj.pennnet.com   By OGJ editors HOUSTON, Jan. 28 -- Oil futures prices fell on New York and London markets Monday after United Nations Chief Weapons Inspector Hans Blix said he could not determine yet if Iraq has weapons of mass destruction as the US claims.

Although Iraq has complied with the inspections, Blix said, Iraq "appears not to have come to a genuine acceptance, not even today," of demands that it disarm.

On Tuesday, traders awaited the State of the Union address by US President George W. Bush for any hints about the timing of a possible war with Iraq.

UN Sec. Gen. Kofi Annan told reporters Monday that weapons inspectors need time to do their job in Iraq, and he urged Baghdad to cooperate with the UN. When asked about potential unilateral action against Iraq by the US, Annan said he hoped the Security Council's existing unity could be maintained.

"In my own speech to the General Assembly on Sept. 12, I stressed the need for multilateralism¿and that position has not changed," he said, adding, "I have not given up on peace, and you shouldn't either."

Meanwhile, Iraqi Deputy Prime Minister Tareq Aziz told Canada's CBC television that Iraq could retaliate against its oil-producing neighbor if the US launched an attack from Kuwait.

"Kuwait is a battlefield, and American troops are in Kuwait¿. If there will be an attack from Kuwait, I cannot say that we will not retaliate. We will of course retaliate against the American troops wherever they start their aggression on Iraq. This is legitimate," he told the television reporter during an interview.

Meanwhile, there were some indications of a possible break in the Venezuela general strike. Some businesses have talked about reopening next week, but striking workers at Petroleos de Venezuela SA told Dow Jones that they are pessimistic about the possibility of returning to work soon.

"The changes that are underway (within PDVSA) don't leave us with many other options left than continuing the strike. We don't have a company to go back to," Carmen Elisa Fernandez, a spokeswoman for dissident PDVSA workers, told Dow Jones Monday.

Bank of America Securities analyst Tyler Dann said he sees continued confusion on both the Iraqi and the Venezuelan situations.

If there is war in Iraq, then resolution will not translate into more oil right away, he said. "Post-resolution, we believe it can reasonably be assumed that Iraqi production approaches a sustainable level of 3.1 million b/d by yearend 2003 [assuming Iraq is not successful in implementing a scorched earth policy]; however, the establishment of an investment framework to further build Iraqi capacity could take as long 18 months, in our view," Dann said.

Regarding Venezuela, the extent of permanent damage to its production remains inconclusive, he said.

"Without a comprehensive resolution of the strike [preferably with (Hugo) Chávez out of power], refinery start-ups and field rehabilitation work will likely be difficult to comprehensively execute," Dann said.

Futures prices The March contract for benchmark US light, sweet crudes dropped by 99¢ to $32.29/bbl Monday on the New York Mercantile Exchange, while the April position lost 77¢ to $31.39/bbl. Heating oil for March delivery slipped by 1.59¢ to 93.43¢/gal. Unleaded gasoline for the same month declined by 2.10¢ to 90.15¢/gal.

The March natural gas contract lost 12.8¢ to $5.40/Mcf Monday as forecasts for cold weather in early February were revised.

In London, the March contract for North Sea Brent crude also settled lower, losing 63¢ to $29.86/bbl on the International Petroleum Exchange. The natural gas contract climbed, up 13.84¢ to the equivalent of $3.218/Mcf on IPE.

The average price for OPEC's basket of seven benchmark crudes lost 40¢ Monday to $30.16/bbl.

abcnews.go.com Jan. 28

— LONDON (Reuters) - World oil prices bounced back on Tuesday after Iraq said it could retaliate against crude producing neighbor Kuwait if the United States launches an attack from Kuwaiti territory.

U.S. light crude by 10:40 a.m. EST was up 31 cents at $32.62 a barrel after losing 99 cents on Monday. London Brent blend added 31 cents to $30.12 a barrel.

Iraqi Deputy Prime Minister Tareq Aziz told Canada's CBC television in an interview in Baghdad that Iraq might strike at Kuwait to defend itself against a U.S. invasion.

"Kuwait is a battlefield and American troops are in Kuwait and preparing themselves to attack Iraq," he said.

"If there will be an attack from Kuwait I cannot say that we will not retaliate. We will of course retaliate against the American troops wherever they start their aggression on Iraq. This is legitimate."

Dealers are waiting for President Bush's State of the Union address at 9 p.m. EST on Wednesday, 2100 local time, for further clues on the timing of any war effort.

"Some traders are looking at whether the threat of war has really subsided, and are taking positions in case the State of the Union address is really more aggressive than the previous rhetoric from Bush," said John Hirjee, senior energy analyst at Deutsche Bank in Melbourne.

DRUMBEAT

Many military analysts expect hostilities to start by the end of February or early March, once the combined forces of the United States, Britain and Australia are in place in the Gulf.

"We'll hear a deafening drumbeat from the United States in the run-up to February 14," said Iraq expert Toby Dodge of Warwick University. "I would be surprised if the air war had not started within seven days of that."

Britain joined the United States in declaring Iraq in "material breach" of U.N. disarmament demands on Tuesday, a day after chief U.N. arms inspector Hans Blix told the council that Saddam had not come clean about stocks of lethal weapons.

British Foreign Secretary Jack Straw said a further report by U.N. weapons inspectors on February 14 was not an ultimatum, but warned Iraq that its "unbelievable" refusal to comply with U.N. demands had diminished chances of a peaceful outcome.

"The U.S.-British deployment will be in place toward the end of February. They could start the air campaign a bit ahead of that, but probably won't," said Sir Timothy Garden, a defense expert at London's Royal Institute of International Affairs.

Sir John Moberly, a former British ambassador to Baghdad, said attempts by the United States and Britain to secure a second resolution might delay war, but not indefinitely.

"When they judge the moment favorable in terms of international support and when they are militarily ready, they will not wait. The machine is lumbering forward," he said.

In Venezuela, opposition oil workers admitted that strike-hit crude production topped a million barrels a day on Tuesday, a third of normal levels, for the first time during the eight-week shutdown.

The government has used troops and replacement crews to break the strike, which aims to force President Hugo Chavez to resign and call an election.

www.news24.com 28/01/2003 14:13  - (SA)  

London - Oil prices climbed on Tuesday on rising worries about the threat to Middle East supplies of a war in Iraq after Baghdad said it had not ruled out an attack against its oil-rich neighbour Kuwait.

Traders were also nervous ahead of a major speech by US President George W Bush in which he was expected to brace Americans for possible war with Iraq, despite signs of opposition from fellow members of the UN Security Council.

The price of benchmark Brent North Sea crude oil for March firmed US28c to R30.14 per barrel in early deals.

"Prices have rallied overnight following comments by Iraqi officials that they might attack Kuwait," said Lawrence Eagles, analyst at brokers GNI-Man Financial.

Iraqi Deputy Prime Minister Tareq Aziz said Kuwait "is a battlefield and American troops are in Kuwait and preparing themselves to attack Iraq".

"If there will be an attack from Kuwait, I cannot say that we will not retaliate. We will of course retaliate against the American troops wherever they start their aggression on Iraq," he told Canada's CBC television.

In New York, the light sweet crude March contract slumped 99c per barrel to $32.39 on Monday after a report by UN chief weapons inspector Hans Blix on Iraq fed hopes that war might be further away than had been feared.

Eagles said Blix had given a "slightly more negative-than-expected assessment of Iraq's co-operation", but added that traders were more concerned about clues on the time-scale for war.

"The key issue for the market is that the weapons inspectors will be given a few more weeks at least to carry out their tasks," he wrote in a note to clients.

Analysts say the threat of disruption to Iraqi oil comes as the market is already tight because of a strike in Venezuela that has severely disrupted the country's oil exports, though there have been recent signs of cracks in the walk-out.

If the market loses Iraq's oil output of about two million barrels per day while Venezuela's exports are crimped, analysts say the Opec oil cartel would struggle to make up the shortfall.

Members of the Organisation of Petroleum Exporting Countries agreed earlier this month to raise output by 1.5 million barrels per day from the start of February, but the move has so far failed to rein in prices significantly.

The United States has huge strategic petroleum reserves of about 600 million barrels, but has been reluctant to tap any of the crude despite calls from US oil majors for their release. - Sapa-AFP

reuters.com Tue January 28, 2003 02:37 AM ET

SINGAPORE (Reuters) - Oil prices bounced higher on Tuesday as the market focused on Iraqi threats of retaliation against any U.S.-led attack and as President Bush prepared to address the nation.

"Some traders are looking at whether the threat of war has really subsided, and are taking positions in case the State of the Union address is really more aggressive than the previous rhetoric from Bush," said John Hirjee, senior energy analyst at Deutsche Bank in Melbourne.

U.S. light crude for March gained 14 cents to $32.70 a barrel after losing 99 cents, or three percent, in New York on Monday.

The market was less than $3 per barrel below 26-month highs struck last week. Oil has risen some 30 percent since mid-November on concerns war in Iraq could upset supply from the Middle East while a prolonged strike in Venezuela has curtailed oil production and exports.

Iraqi Deputy Prime Minister Tareq Aziz told Canada's CBC television Iraq might strike at Kuwait to retaliate against any U.S. invasion.

"Kuwait is a battlefield and American troops are in Kuwait and preparing themselves to attack Iraq," he said in an interview in Baghdad. "If there will be an attack from Kuwait I cannot say that we will not retaliate. We will of course retaliate against the American troops wherever they start their aggression on Iraq. This is legitimate."

AZIZ PLEDGES COOPERATION

However, Aziz, speaking after U.N. weapons inspectors said Baghdad could be doing more to help their probes, promised Iraq would cooperate more in future.

Aziz said there were only two areas of contention between Iraq and the inspectors -- the question of whether U2 surveillance planes could fly over the country and the conditions under which U.N. inspectors could interview Iraqi scientists.

"All other aspects of cooperation have been met and we promise to be more forthcoming in the future replying to all their needs in (a) way that will satisfy them," he told CBC.

The United States and Britain have launched a massive military build-up in the Gulf region ahead of a possible war to disarm Iraq of alleged illegal weapons.

The world is waiting to hear if President Bush will provide further clues on his next move when he delivers his State of the Union address at 0200 GMT on Wednesday.

Oil prices plummeted on Monday when chief United Nations weapons inspector Hans Blix was unable to corroborate U.S. claims that Baghdad had rebuilt its weapons of mass destruction arsenal, saying he could not give a verdict one way or another.

Blix sharply criticized Iraq for not disclosing all of its long range missile, chemical and biological arms programs.

"It is not enough to open doors. Inspection is not a game of catch as catch can," Blix said. "Iraq appears not to have come to genuine acceptance, not even today, of the disarmament that was demanded of it."

U.N. Secretary-General Annan said arms experts should be given a "reasonable amount of time." "If they need time, they should be given the time to do their work," he said.

European and Middle Eastern allies are pushing the United States to allow the inspectors more time, possibly until March 1, officials and former policy makers told Reuters at the World Economic Forum in Davos, Switzerland.

A debate within the Venezuelan opposition on Monday over scaling back its two-month strike kept a rein on oil prices.

The country's oil industry has been paralyzed by a strike aimed at toppling President Hugo Chavez.

Venezuelan crude output has recovered from the lows of December and strikers said on Monday production was about 966,000 barrels per day, 29 percent of pre-strike levels. Chavez claims production has reached 1.32 million barrels a day.