www.nationalpost.com Sherry Cooper Financial Post Friday, March 14, 2003

Does anyone really believe that the weapons inspections in Iraq are working and that the United States has already won, as Mr. Chrétien suggested last weekend? While we can reasonably debate the necessity of going to war, it is difficult to argue that Iraq is in compliance with Resolution 1441, requiring full and unconditional disarmament. The United States and the U.K. cannot indefinitely keep a 200,000-plus armed force on the doorstep of Iraq. And without that force, the weapons inspectors would be rendered impotent. As the diplomatic dance continues, the global economy has already paid an enormous price, and that price is now rising rapidly.

For more than a decade, the United States has provided the growth engine for the rest of the world. That engine is now clearly sputtering. While the American economy appeared to be reviving last summer, the resuscitation was cut short by the surge in energy prices and the shocks to business and consumer confidence. The rise in energy prices -- oil, natural gas, heating oil and gasoline -- has imposed a heavy tax on both households and businesses. Those who have recently paid a heating bill or filled up a gas tank know that discretionary income is down sharply. More than the fear of Middle East oil disruption has contributed to the surge in prices. It has been exacerbated by the unusually frigid winter weather. A strike in Venezuela, the fifth largest exporter of oil, has hobbled output. Refiners in the United States, the largest consuming nation, have whittled inventories to record lows in an effort to cut costs, and the shutdown of nuclear power plants in Japan has triggered large imports of extra oil for electricity there. Compound this with reduced conservation efforts, as Americans and Canadians have fallen in love with gas-guzzling SUVs, and you see why oil prices have risen so sharply and are unlikely to fall to the low-$20s even after the war.

The household sector is not the only casualty in the energy-price surge. The airline industry, already on its last legs, is further battered by the rise in costs. Many, including Air Canada, Northwest, United, US Airways, Air France and Lufthansa, are adding fuel surcharges to airfares, further eroding consumer purchasing power. The automobile industry, long a stalwart for the recovering economy in the United States and the booming economy in Canada, attributes much of its recent U.S. sales decline to consumer worries about war and higher gasoline prices. Production cuts in that sector are now threatening the strength of Ontario's economy.

And sentiment shocks are also doing meaningful damage. U.S. consumer and business confidence have been falling for months, and the latest survey data, released this week, suggest that Canadians are also feeling less optimistic about their economic futures -- not surprising, given the geopolitical purgatory we are enduring. The "CNN effect" has already set in. Consumers are glued to their TV sets and Internet screens, rather than out shopping, eating, drinking and cavorting. Businesses have postponed investment and hiring decisions, especially in the United States, and many remain fearful of terrorist reprisals as the United States appears to be increasingly isolated and mistrusted.

The U.S. economy deteriorated sharply in February, capped by the ghastly employment report. While the Canadian economy created more than 55,000 jobs last month, the United States lost 308,000. The February plunge in the U.S. employment figures might have been exaggerated by the January bounce, the call-up of military reserves and the East Coast blizzard, but these factors cannot fully explain the extraordinary weakness. It reflects employers that continue to retrench across the board. And the further elevation in the weekly unemployment insurance claims in the United States suggests scant improvement in March.

As a result, stocks have sold off sharply and interest rates have fallen as the safe-haven flight to government bonds continues. U.S. two-year yields have fallen below 1.4%, their lowest level in history. Ten-year Treasury yields touched 3.5% this week, their lowest reading since 1958. Some have speculated that the Federal Reserve will cut the overnight rate from an already depressed level of 1.25% when it meets next Tuesday. In my mind, this is unlikely in that it would do more to arouse concern than to assuage it, especially in the midst of the Security Council countdown. More likely, the Fed will shift its assessment of the economic outlook from neutrality to weakness, preparing us for a rate cut this spring. But we have already seen 12 rate cuts and U.S. mortgage rates are at record lows. It's hard to imagine that the Fed's actions this time would turn the tide.

Instead, what is needed now is a resolution of the Iraqi situation. It appears, in my mind, that barring a miraculous exit of Saddam Hussein, the cost to global security of not going to war may at this point be greater than the cost of doing so. After all the sabre rattling, the United States and Britain cannot blink now without emboldening not only Saddam Hussein, but also Kim Jong-il, the leaders of Iran, and any other dictators. Unfortunately, it appears that the turbulence in the post-Sept. 11 world is far more costly for the United States than anything we saw during the Cold War. The expenses and dangers of being the world's only superpower will continue to be far greater than imagined. A world so dependent on the strength of U.S. demand for imported products will be badly shaken by weakened American purchasing power. The fall in the U.S. dollar -- the rise in the Canadian dollar, the euro and the yen -- is reflective of this. Prolonging the current geopolitical uncertainty will only increase the price we all pay.

Sherry Cooper is global economic strategist and executive vice-president, BMO Financial Group.

www.newsday.com By James Toedtman CHIEF ECONOMIC CORRESPONDENT March 14, 2003

Washington - A war against Iraq threatens to undermine an already weakened U.S. economy, especially because of the potential for higher energy costs, what one energy expert calls "the gorilla in the bathtub."

While some past wars boosted business activity, U.S. military action against Iraq and its aftermath is likely to cause more problems for the economy, government officials, business leaders and economists say.

The consensus view is that even under the best-case military scenario - a quick victory - the economy will see rising unemployment, bankruptcies and government deficits.

And then there's the gorilla in the bathtub. That's the phrase used by Kevin Rooney, executive director of the Oil Heat Institute of Long Island, to describe the biggest potential economic danger that war poses: its impact on the cost of energy.

Oil prices already are at 12-year highs, gasoline prices are around $2 a gallon, home heating bills have people gasping in disbelief - and the whole situation could get worse if supplies from the oil-rich Middle East are disrupted. Higher energy costs also raise the specter of overall inflation rearing its ugly head.

That could be the blow that forces consumers to cut way back on their spending. Weary after two years of slack economic growth, depleted retirement accounts and growing job anxiety, consumers would especially feel the pinch of higher energy costs.

"People are already paying the price" of a war, said Larry Goldstein, president of Petroleum Industry Research Foundation.

Some past wars stimulated the economy because the government poured so much money into the effort. That was certainly the case in World War II, when the $2.9 trillion in spending more than doubled the size of the nation's economic output. But spending on the Persian Gulf War amounted to only 1 percent of the gross domestic product, and a war with Iraq could be similar in size.

"We are starting from a weak position," said Sung Won Sohn, chief economist for San Francisco-based Wells Fargo Bank.

The potential price tag may be measured on three levels: the direct war costs, the cost of reconstruction and the impact on the overall economy.

While the Bush administration has been reluctant to publicly discuss the actual cost of a military campaign, private and congressional estimates range between $50 billion and $100 billion, depending on the length and difficulty of the battle. That is comparable to the Gulf War in 1991, except that the costs that time were shared by more than a dozen nations. The United States has committed to assume virtually all costs for any new military action.

But the price tag could be a lot higher, according to Yale economist William Nordhaus, a White House economic adviser during the Carter administration. Estimates are always low, he said, putting the cost at as much as $140 billion.

The cost of stabilizing and rebuilding Iraq is even more uncertain, except that it will be high. "A short war with oil facilities intact would cost a modest amount. But a messy war with torched oil fields would raise the costs dramatically," Sohn said.

A Council on Foreign Relations task force led by former CIA director James Schlesinger and Undersecretary of State Thomas Pickering recommended a combined occupation and nation-building force that would cost up to $20 billion a year for several years. Nordhaus estimated the post-conflict costs at between $100 billion and $600 billion over the next decade. The administration is already mobilizing a UN-based reconstruction effort, which would help deliver the services and share the cost.

"Americans should know the costs are going to be considerable," Schlesinger said this week. His $20 billion-a-year price includes the cost of 75,000 troops and $3 billion in food and medical care.

The consequences of any conflict ricochet like a pinball - in unexpected directions and with uneven impact. The military costs, for example, will feed an already growing federal budget deficit, now pegged at $307 billion.

"That will make deficits larger, so we'll see higher interest rates," said Pearl Kamer, chief economist for the Long Island Association. That in turn could raise borrowing costs for car loans and home mortgages, and make it more expensive for businesses to finance new projects.

Consumer confidence would then suffer even more. "On Long Island, we saw it lag in the last three months of last year, but it's now actually fallen below last year," Kamer said, pointing to sales tax revenues in Nassau and Suffolk that were 2 percent lower this January than last.

Growing defense spending will provide some direct benefit for New York, but the cost-benefit ratio is asymmetrical. For example, the Navy announced a $300 million contract for developing a counterpart to the unmanned Global Hawk surveillance drone now deployed in the Persian Gulf. That has the potential of between 150 and 500 new jobs at Northrop Grumman's Bethpage facility.

But on the same day, the airline industry warned that an Iraq war could reduce passenger traffic by 8 percent, cost the airlines $10.3 billion, eliminate 70,000 jobs, including thousands in New York, and bring the entire industry to the brink of bankruptcy.

Before the start of any military conflict, the price of a barrel of crude oil has risen from $20 to $38 in the past 12 months. That translates to higher heating oil (prices in the metropolitan area have gone from $1.39 to $2.04 per gallon) and jet fuel (61 cents to $1.30).

That affects transportation. A 1-cent increase in the price of jet fuel costs the U.S. airlines $180 million a year, according to the Air Transport Association. Higher energy costs also affect the prices of plastic, fertilizer and food processing. Even construction costs rise, Sohn noted, in part because of the cost of making and then shipping drywall.

Part of the oil problem is based on a national strike in Venezuela that cut daily production there in half.

Further complicating the energy picture is the duration and severity of this winter's cold weather, and the tight supply of natural gas. Most businesses can switch between oil and natural gas, depending on market conditions. When oil prices rose last fall, many opted for natural gas. With depleted natural gas supplies and disrupted oil production, prices of both fuels have skyrocketed.

The global oil supply system is "running on empty," according to a report this week by the International Energy Agency.

That has prompted calls from industry and government leaders to bridge the shortfall by tapping petroleum reserves around the world. Sen. Charles Schumer (D-N.Y.) warned yesterday that the nation risked a recession unless the Bush administration taps the Strategic Petroleum Reserve.

"High prices for crude oil, gasoline, jet fuel and home heating oil are the four horsemen of what will soon be an economic apocalypse if nothing is done," Schumer said.

COST OF CONFLICT

A war against Iraq is expected to cost the federal government $50 billion to $100 billion, about 1 percent of the U.S. gross domestic product. How past wars compare:

NAME OF WAR

Name of War Cost In billions %GDP In 2002 dollars (at the time) Revolutionary War $2.2 63% War of 1812 1.1 13 U.S.-Mexican War 1.6 3 Civil War* 62.0 104 Spanish American War 9.6 3 World War I 190.6 24 World War II 2,896.3 130 Korean War 335.9 15 Vietnam War 494.3 12 Persian Gulf War 76.1 1

• Includes Union and Confederate sides

SOURCE: U.S. Commerce Department

Cost in %

www.heraldnet.com Published: Friday, March 14, 2003 By Bryan Corliss Herald Writer

EVERETT -- Local hospitality businesses should stress training and security to meet the changes in tourism after the Sept. 11, 2001, terrorist attacks, an expert on tourism said Thursday.

They also should be more aware of how world events can affect their business, focus on short-term planning and work more closely with other segments of the community, said Peter Tarlow, a sociologist who specializes in tourism and economic development.

"In hard times, win loyalty by going forward, not cutting back," Tarlow told the Snohomish County Tourism Bureau during its quarterly forum. "Those people who cut on service and security, I think, will be out of business."

Tourism in the 21st century is changing, Tarlow said. The fast-growing segments are baby boomer grandparents traveling with their grandchildren, and women traveling alone on business.

Those people have unique needs, he said. Hotels need to come up with security plans to address the concerns of single women. That can mean improved lighting and locks, and providing escorts to help late-arriving women to their rooms.

Baby boomers can be demanding travelers, he added. Hotel staffers need to be trained in how to handle their complaints.

And tourism has changed after Sept. 11, Tarlow said. "Anyone who thinks that terrorism is not about tourism is living in never-never land," he said. "Almost every (airline) is either in bankruptcy or on the verge," and hotel and restaurant business remains down.

World events affect tourism, Tarlow said. If Saddam Hussein blows up Iraq's oil fields, and strikes continue to disrupt petroleum production in Venezuela, and if the U.S. goes to war in North Korea, "you have a very different season."

And what happens to a community if a Fourth of July festival is canceled by a federal security alert? he continued. Tarlow urged tourism planners to be flexible in their thinking and to focus on the coming months, not years.

"A year is too far out," he said.

Tourist groups also should work to ingrain the idea that customer service is important across the community, not just in hotels, Tarlow said. Tourism is a $3 billion industry worldwide, and everyone who might come into contact with a visitor -- from police to convenience store clerks -- must play a role in it.

"You can't live in isolation," he said. "We have to, in the 21st century, start working together."

Reporter Bryan Corliss: 425-339-3454 or corliss@heraldnet.com.

new.stockwatch.com 2003-03-13 17:11 ET - News Release Ms. R. Page Chilcott reports

Cadre Resources Ltd Snapshot Symbol CSL.T Shares Issued 8,971,715 Close 2003-03-07 C$ 0.09

Cadre Resources has negotiated a private placement for a total of 650,000 common shares at 10 U.S. cents per share based on the following terms: 400,000 common shares at 10 U.S. cents payable immediately; and 250,000 common shares at 10 U.S. cents payable by the sooner of August, 2003, or at such time as the weighted trading market price of the common shares of the company exceeds (equivalent) 30 U.S. cents for five consecutive trading days.

No finder's fees are payable on the transaction.

As previously reported, the company has arranged a joint venture with Bateman Project Holdings Ltd. and Seabulk Systems Inc. with the objective of developing jointly, the multiproduct alluvial mineral-quartz/granite aggregate extraction project known as the Caroni River project in the state of Bolivar, Venezuela.

The proceeds of the private placement will be used for the furtherance of the goals of the joint venture.

On behalf of the joint venture, a Propuesta proposal has been submitted to Venezuela authorities requesting the right to conduct a bankable feasibility study on the project with the right of tenure to jointly develop, design, construct and startup the project subject to favourable outcome of the study.

A recent meeting requested by Venezuelan authorities was postponed due to recent (force majuere) events in Venezuela causing a delay in the granting of the feasibility permitting.

That meeting is to be rescheduled at a mutually acceptable time. The project represents much sought after foreign investment in a multiproduct, multimarket, non-petroleum export.

The proposed project adheres to the four principles of sustainable development: environmentally friendly, ecologic sustainability, economic vitality and social equity over a project life of 50-plus years.

www.nzherald.co.nz 14.03.2003 - 8.30am

LONDON - World oil prices came off their recent highs on Thursday as the United States said efforts to garner support for a new UN resolution on Iraq could extend into next week, potentially further delaying a Middle East war.

Oil traders said however that despite the downturn, sentiment was bullish because the looming war on oil producer Iraq and shrinking energy stockpiles in the United States, the world's largest crude consumer, continue to raise supply security fears.

London benchmark Brent crude oil fell 35 cents to US$33.56 a barrel while US light crude was 33 cents down to US$37.50.

"There is a bit of consolidation going on but basically there is still a bias to the upside -- people are concerned about security of supply issues," said Kevin Norrish, energy analyst at Barclays Capital.

"We are not moving into a higher price band just yet because of this uncertainty on the (UN) vote," one oil trader said.

Still lacking Security Council support, the White House said on Thursday diplomatic efforts could spill over into next week. Its main ally Britain offered a new concession by offering to drop a demand for President Saddam Hussein to appear on Iraqi television and own up to past illegal weapons programmes.

France repeated its opposition to giving Saddam any ultimatums and said it was prepared to kill any such resolution by using its veto.

Members of the UN Security Council are to meet at 2000 GMT to discuss the new British proposals.

Prices rose on Wednesday as the fall in US stocks combined with worries that oil cartel Opec would not be able to compensate for lost Iraqi exports in event of war.

Latest US data showed crude inventories falling last week to a 27-year low. There there were also sharp drops in gasoline inventories, which ought to be growing as stockbuilding starts for the summer driving season.

Analysts say core oil stocks are now 89 million barrels below normal.

"Given the reported ramping of Opec production and the continued recovery of Venezuelan production, the shortfall is shocking," SG Securities said in a research note.

The Organisation of the Petroleum Exporting Countries has stepped up output this year to cover an outage of crude from Venezuela, where an anti-government strike brought production to little more than a trickle in December and January.

Venezuela, normally the fifth-biggest exporter providing about 13 per cent of US oil imports, has increased shipments of crude and oil products though rebel oil workers say production is still less than half of normal levels.

Analysts say timing is now key for the war because oil demand is generally two million barrels lower in the second quarter of the year as spring advances and the loss of Iraqi crude will not be as acutely felt as now.

"The more the war gets delayed the less the potential for price spikes," Barclay's Norrish said.

The West's energy watchdog the International Energy Agency says the Opec cartel likely lacks enough capacity to compensate immediately for the loss of Iraqi and Kuwaiti oil.

It said in its monthly report that the global oil system was "running on empty" and that a further supply disruption would "tax a system running close to capacity."

Opec however has pledged to guarantee supplies should war break out and Saudi Oil Minister Ali al-Naimi reiterated on Thursday Opec's ability to deliver oil in case of war in Iraq.

A further note of relief for soaring prices came from an end to freezing US temperatures which have supported heating oil prices at near record levels in recent weeks. Oil traders said a sell-off on heating oil futures was exerting downward pressure on crude.