Is there a particle of evidence to suggest that Iraqi leader Saddam Hussein will abide by the following timetable?

  • By Nov. 15, Saddam Hussein accepts Resolution 1441, the U.N. pact that allows inspectors immediate access to any site in Iraq, including presidential palaces.
  • By Dec. 8, Hussein gives the U.N. a complete list of all of its weapons programs: ballistic missile, biological, chemical and nuclear.
  • By Dec. 8, he also provides an accurate, complete and self-incriminating list of weapons programs, a list that jibes with U.S. and international intelligence evidence. In presenting the list, Hussein comes clean, admitting he's been lying for years about weapons development programs.
  • Then by Dec. 23, Hussein allows the United Nations Monitoring, Verification and Inspection Commission, or UNMOVIC, to conduct full-scale, immediate inspections anywhere. In so doing, Hussein opens the country up, giving inspection teams "unconditional and unrestricted access," including surprise visits to his presidential compounds. Delays are never more than two hours.

The odds of the Iraqi leader complying fully with the resolution and its timetable and subjecting himself to international humiliation and submission are slim. He has, after all, shown himself to be a vain, irrational, and even suicidal despot. And while passage of the resolution makes a unilateral attack by the U.S. less likely, it substantially hikes the odds of a U.N.-backed strike and ground-troop occupation of Iraq before the new year. As you know, war in the Persian Gulf is highly correlated with oil-price spikes.

January

crude oil

(CLF3:NYMEX) plummeted substantially over the past six weeks, falling 17% from the Sept. 24 high, as the U.S. appeared less likely to take military action. Now, with the odds of war substantially increased because of passage of the resolution, traders are less likely to continue holding or initiating short positions.

As if on cue, January crude touched down Friday to the 50% retracement of its rally since October 2001, a key technical level that coincides with additional support provided by an unfilled gap from last June. Despite the recent implosive momentum, the increased likelihood of war in the oil-rich Persian Gulf is enough of a force -- significant enough of an event -- to derail the abundant downside inertia in crude and energies and trigger a reversal.

Military action in Iraq could also spur flight-to-safety trades, moves that were in evidence Friday. December

gold

(GCZ2:COMEX),

Swiss francs

(SFZ2:CME),

Japanese yen

(JYZ2:CME),

T-bonds

(USZ2:CBOT) and

10-year notes

(TYZ2:CBOT) all hit fresh 10-day highs in signs of nascent momentum. Of course the

Fed's

aggressive

rate cut to 1.25% last Wednesday also helps these markets.

Marc Dupee is an independent trader and co-author of the book

The Best: Conversations With Top Traders. Dupee was formerly markets analyst and futures editor for TradingMarkets Financial Group. At time of publication, he held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback to

Marc Dupee.

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