An Iraq war could bring gas-pump gloom

Waging war means sacrifice. But so far, at least concerning the gas pump, the war on terrorism hasn't asked much sacrifice of America's consumers.

Gasoline is cheap and plentiful, as America's gas-guzzling SUVs, proudly flying the Stars and Stripes, testify. Gas remains inexpensive because the world oil market is stable and relatively well supplied.

But happiness at the pump could change as the United States contemplates taking the war on terrorism to the Gulf region to force a regime change in Iraq.

One fact is worth keeping in mind: Iraq is back as America's sixth-most-important crude-oil supplier - exactly where it was in 1990, before the Gulf War. That conflict took out Iraq as a source of crude, and it sent oil surging to $40 a barrel, about double today's price.

With the world oil market's excess capacity lower than what it was at the time of the Gulf War, any disruption of supplies could "have an important impact on the world economy," says George Perry, an oil-economics analyst at the Brookings Institution in Washington. "A clumsy intervention in the [Gulf] region could end up causing quite a bit of trouble."

President Bush may characterize Iraq as part of an "axis of evil," but its oil is sweet: Iraq is now the fastest-growing source of imported oil to the US, supplying between a half-million and 1 million barrels a day.

As the Bush administration - well-connected in the energy sector - moves toward action against Saddam Hussein, it leads a country that offers a mixed picture in terms of oil. The US is considerably more dependent on imported oil now than it was at the time of the Gulf War - from about 37 percent to more than 52 percent imported today. A greater diversification of sources, on the other hand, means the US is less dependent on one region - the Persian Gulf - than it was a decade ago.

The US today is either importing more of its energy - or gearing up to import more - from sub-Saharan Africa, other points in the Western Hemisphere, and the former Soviet republics around the Caspian Sea.

"Production in the Americas is on the uptick. Production around the Caspian is on the uptick," says George Baker, an oil analyst with Baker & Associates in Houston. Mexico - the fourth-biggest supplier to the US last year, according to the Energy Department - is well ahead of where it was in 1991 in terms of daily production. And it's planning for even more. Noting that one example, Mr. Baker says that global suppliers coming into production "mean we have quite a bit of potential for making up Middle East oil that might be lost."

This diversification of US suppliers may help explain why the Bush administration wants to spend nearly $100 million to train and equip a Colombian Army battalion to protect a key oil pipeline that is constantly being bombed by the country's Marxist rebels. Or why the US military, in the wake of Sept. 11, is building new bases or other facilities in Central Asian countries including Kyrgyzstan and Uzbekistan.

The Central Asian bases are explained as necessary as the US plans for an extended global war on terrorism. But Baker says they can also be explained in the context of oil - and the potential for disruption in the Gulf oil-producing region if the US attacks Iraq.

"Why are we building bases in the Caspian? Because we're trying to protect the stability of Caspian oil production," he says. "And why are we doing that? We need to have that oil production in place if we're going to risk losing Saddam Hussein's oil."

The US is expected to make other decisions that will affect to some degree its access to oil. The Bush administration will likely renew a prohibition of US energy investment in Iran and Libya. The sanctions, in place on Iran since 1995 and on Libya since 1996, take US oil firms out of the running for big oil-development contracts in the two countries.

Some US analysts had speculated that the ban on business might be dropped after the US renewed contacts with both the Libyan and Iranian governments in the wake of the Sept. 11 attacks. But Mr. Bush's inclusion of Iran in his "axis of evil" appears to have dashed those hopes.

Mr. Perry of Brookings says such sanctions, while they may sound tough, have absolutely no impact on the global oil price because neither Iran nor Libya lacks for other consumer countries to sell to.

Perry says it would take disruption of Persian Gulf supplies to cause instability in the oil market. And Houston's Baker says that perhaps the best thing the US could do to ward off instability - especially if it's contemplating military action in the Gulf - would be to address the Israeli-Palestinian conflict.

Doing that could help reduce a lot of animosity toward the US in the Muslim world and some of the adverse forces the oil-producing governments in the region face. "Even if you're only thinking about oil," he says, "that's the first fire to put out."