Careful wishes

Recent terrorist attacks in the US closed doors to the petroleum industry but also opened windows.

Recent terrorist attacks in the US closed doors to the petroleum industry but also opened windows.

First the bad news: The Sept. 11 events will continue to inflict deep personal costs on oil and gas companies that will linger for years. There are also tangible expenses that must be addressed-some short-term, others indefinite.

Security upgrades to the nation's gas pipelines and electric grid could increase costs that will be passed on to ratepayers.

Meanwhile, the widely accepted business practice of just-in-time inventories, used to some extent by some companies to be more efficient, may also be revisited. If businesses feel they must stockpile parts or fuel, consumers will pay an added price. So far, the government has resisted the temptation to insist on mandatory stockpiling, and oil companies hope it stays that way. They say that decades of experiment show that trusting market fundamentals is the best way to ensure adequate supply.

Feast and famine

And in fact, today it is an oil glut, not a shortage, that really worries oil companies.

Early concerns that recent events would mean disrupted supplies were unrealized. Instead, threats of recession and firm commitments from top oil producers to keep supply flowing could translate into depressed oil prices for some months, barring any military-related supply disruptions.

The good news is that stable oil prices help consumers. But very low prices are damaging to most US oil companies. An antidumping petition by a group of small independents sought to hammer that point home in 1999-2000. The administration of President Bill Clinton and the American Petroleum Institute agreed that prices then were too low. But, they argued, seeking to impose what would amount to an oil import fee would hurt the US economy and damage ties with key allies named in the petition, including Mexico, Saudi Arabia, and Venezuela.

Security dividends

Two years after the antidumping petition was filed, there is a new president, George W. Bush, and the oil market has spiked and dropped yet again.

Major producers and larger independents are betting that the president now has the opening he needs to dismiss the petition for good by citing national security concerns.

Meanwhile, there are other windows of opportunity under the national security umbrella. Some companies are guardedly optimistic that Iran's support of the US vs. the Taliban government of Afghanistan may soon translate into commercial opportunities.

But it may be too early to reopen that Tehran office, US officials and analysts caution.

"Building a broader relationship with the US depends largely on consensus within Iran's political elite," says the Eurasia Group. "That is unlikely, given the severe domestic constraints of the President Khatami government. Indeed, there remains a real possibility that the schism between conservatives and reformists will become even deeper, if an opportunity for rappochement with Washington coincides with continued escalation in the Arab-Israeli conflict."

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