As war threat looms, Americans pay at the pump

Aurelio Garcia sits inside his Ford Explorer and waits for the familiar click that signals his gas tank is full. Normally, he spends his time at the pump reflecting on his busy day ahead. But today, as the digits climb higher and higher, Mr. Garcia is thinking about war.

"It's necessary," he says halfheartedly, looking at the final bill: $26.70. "We've got to get Saddam Hussein out of there."

While some consumers are grousing about Iraq as they grip the wheel, others, like Mr. Garcia, say they are willing to pay what it takes - at the pump or in the US military budget - to remove Saddam from power. But whatever their views on Iraq, Americans are finding that fuel costs are rising along with the prospects for war.

It's especially bad out West, with gasoline topping $2 per gallon in some California cities. And people who fly as well as drive get a double-whammy: $10 fuel surcharges on recently slapped onto each leg of many flights.

Various factors are at work, from low stockpiles at home to uncertainties in oil-producing locales as diverse as Nigeria and Venezuela. But experts say the politics and psychology of war are also playing an important role.

"The price of gasoline began to increase immediately following Bush's State of the Union address, in which he hinted that we could be at war with Iraq in a matter of weeks," says Geoff Sundstrom, a spokesman for AAA in Heathrow, Fla. But the price increase, he says, stems more from fear of the unknown than from any real spike in demand.

Among the non-Iraq factors at play:

• Oil shipments from Venezuela are still lower than normal because of the country's three-month strike aimed at ousting President Hugo Chávez. The US typically imports about 13 percent of its oil from Venezuela, but has had to find alternatives as the strike stretches on.

• This is typically the time of year when many US refineries are brought down for routine maintenance. They may either be running at lower levels or not producing at all, forcing some areas to rely on reserves. Three Venezuelan-owned refineries in the US have shut down altogether.

• With meteorologists predicting a cold spring, many refineries are choosing to produce more heating oil than gas, again limiting supplies at the pump.

But overriding all this, in the minds of many - including commodity traders - is a possible war with Iraq.

That, along with cold weather, was cited by analysts as a key reason yesterday's government report on wholesale prices showed a 13.7 percent one-month jump in gasoline and a 19.7 percent spike in heating oil.

"In my honest opinion, they're raising the price of gas because they need money for the war," says Carl Fua, speculating that the US government itself is manipulating prices as he fills his company truck with gas at a Chevron station near downtown Houston.

In Texas, regular unleaded averages about $1.60 per gallon.

Mr. Fua used to spend about $25 filling up; he now spends about $40. And his waterproofing company will no doubt have to pass that extra cost to the consumer. "This price increase affects everything," he says, jumping into the driver's seat. "It's the trickle-down effect."

Few see a government conspiracy, but all consumers are feeling the same pinch.

AS of Thursday, the national average for regular unleaded is $1.665 per gallon, according to AAA, the nation's largest auto club. States such as California and Hawaii are the highest, at $1.914 and $1.884 respectively - and at least 500 gas stations around the country are charging $2 or more for a gallon of regular unleaded.

Diesel fuel is also setting records, averaging $1.751 a gallon. At a diesel station east of downtown Houston, Phillip Borski tops off his truck's two 50-drum tanks in preparation for a day of furniture delivery. He's less convinced that the price increases are due to war jitters.

"Everybody keeps saying it has to do with Iraq, but I think it has more to do with Venezuela," he says.

Even a minor disruption in deliveries from Middle Eastern countries could cause gas prices to spike even higher - especially in a protracted battle, says Amy Jaffe, senior energy analyst at Rice University in Houston.

"We should be able to control prices for a period of time with our strategic reserves, but not if the war lasts for 6 to 8 months," she says. Indeed, crude oil inventories in the US are at historic lows, allowing for little flexibility.

The good news, say analysts, is that Persian Gulf countries have already begun to increase the amount of oil produced, and the US should see the result of that extra effort in the next several weeks.

Even with that additional oil prices may well jump even higher in a war. But panic, experts warn, would only worsen the problem.

"We don't want people to look at gas the way the administration advised them to look at duct tape," says Larry Goldstein, president of the Petroleum Institute Research Foundation in New York. "The market is ... too fragile for everyone to be topping off their tanks. That could create the very thing we're concerned about."

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