War in Iraq brings out the gambler in many of us

April 06, 2003|By JAY HANCOCK

WANT TO BET on the war?

The price of May 31 Saddam-deposition futures on Tradesports.com popped 15 percent last month as the U.S.-led coalition invaded Iraq.

If Saddam Hussein retains power on May 31, the contract pays zero. If he's gone, it pays 100 cents on the dollar. Last week's price: 85 cents.

BetOnSports.com takes separate wagers on whether Saddam by June 30 will be dead, imprisoned, exiled, missing or "smoking Cubans with buddy boy Muammar Kadafi." The house odds on Saddam lighting up a San Cristobal de la Habana in Tripoli aren't much longer than chances that he'll still be addressed as "Mr. President" in three months.

Bigger war gambles are ventured at the New York Mercantile Exchange. Nymex contracts for June delivery of crude oil rose from $25 a barrel in November to $36 just before the war's start and then fell back below $28 as U.S. troops rolled toward Baghdad.

The price of oil is a tarot card for Saddam, U.S. troops, the war and the world economy all at once. If you like the chances of Saddam surviving in Baghdad on June 30, you really like crude at $28. To be bullish on petroleum is to be bearish on Gen. Tommy R. Franks.

There is no Daily Racing Form in this business. The nearest equivalents are newspapers, CNN or high-priced newsletters from political-risk consultants. Petro analysts who normally worry about crack spreads or oil consumption as a function of gross domestic product growth have become ad hoc military handicappers and geography students.

Most Iraqi oil is pumped far from Baghdad - in the south, around Basra, and in the north near Kirkuk. Most Iraqi oil, then, is no longer controlled by the Iraqi regime, which is pinned down in the capital.

Some analysts believe this signals war's end for oil markets, if not for soldiers on both sides and Iraqi citizens. Betting on $40-a-barrel crude required a belief that Saddam would either hold out for months against Western attackers or spitefully annihilate Iraq's oil-production capacity, causing a global shortage that would push up prices.

But Saddam's loss does not yet equal the coalition's gain.

Late last week, U.S. and British forces controlled the giant Rumaila oil field, near Kuwait, and had extinguished most of the fires there. But Basra and Kirkuk had not fallen.

Even if Western forces take full command of major oil fields, Iraqi soldiers could strike against refineries and pipelines from strongholds in the cities. Even if Baghdad, Basra and Kirkuk surrender, irregulars and army stragglers in the countryside could sabotage oil assets. And even if all goes perfectly from now on for the coalition, the U.S. Army Corps of Engineers is saying it will take "months" to renew Iraqi oil exports.

Oil does not matter as much to the economy as it did in the 1970s, but it matters a great deal. The Earth secretes about 77 million barrels of crude per day, of which Iraq until recently was contributing about 2 million barrels. Some experts believe a pro-Western Iraqi regime could sell as much as 6 million barrels a day.

Remember that it took only 2.9 million barrels to vanish from daily production during the 1973 Arab oil embargo, according to U.S. Energy Department, to cause gas prices to triple and send the United States into recession.

Some analysts believe higher oil and gas prices resulting from the present war and its high-pressure prologue may have already pushed the country into a slump. Merrill Lynch economists calculate that each 1-cent increase in gas prices swipes $1 billion from U.S. households and equals an after-tax pay cut of 0.6 percent. And they note that every postwar U.S. recession has been preceded by a crude-price rise of at least 75 percent.

Between early 2002 and the start of the war, crude prices doubled, to $37. Coalition progress and the survival so far of most Iraqi oil assets have pushed the price back below $30. But U.S. setbacks would drive the ticker back up; a Western triumph and the unimpeded flow of Iraq's black bounty would send it diving, which would be like economic caffeine.

Want to bet on the war? If you drive a car, have a job or own a stock, you already have.

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