As the sun finally broke through the clouds in Houston last week after days of rain and fog, banks of azaleas were peaking too, bringing a shot of much-needed color to the city. What was this editor up to? I enjoyed lunch with an A&D advisor who was so enthusiastic about having pulled off a good coalbed-methane sale, to a unique buyer and in a very short time frame, he could barely contain himself. I spoke with an entrepreneur in his early 40s, who built up an E&P business over the past 10 years, recently sold it profitably, and is now happy to be starting another E&P company, this time, a much bigger one, he hopes. Later, I ran into a friend who is excited about starting a new mezzanine finance business-and he's already closed his first deal, even before signing an office lease, buying a big desk, or getting new business cards printed. And finally, I rode in the front seat of a small helicopter from Houston to Cameron, Louisiana, and then, to a jackup rig about 20 minutes out in the shallow Gulf, to find out why operators are pursuing the deep gas play on the Outer Continental Shelf. All over the oil patch, people and companies were going about their business and the U.S. rig count finally broke above 900. Devon Energy was operating or participating in 110 wells drilling in North America. At press time that number was about to rise, as its merger with Ocean Energy was set to close. But then, while at Bush Intercontinental Airport, I pulled up behind a huge bus that was unloading dozens of young men. It was then that I noticed: the baggage cart was piled sky high with green camoflaged duffle bags. And that snapped me back to some hard geopolitical realities. I hope that the rest of this column is moot, but I fear it won't be. This spring the diplomatic window remained open long enough to allow the U.S. military more time to get the right mix of troops and equipment poised around Iraq. But as negotiations dragged on and rhetoric intensified, that also emboldened more governments and individuals to speak out against war in the Middle East. In phase one, special forces were to be inserted. In phase two, very targeted U.S. air strikes would begin. In phase three, a ground invasion that takes one or two weeks would then proceed into the Iraqi heartland. "At any time, this process could stop if there is a coup. But, there have been 60 attempts in the last 10 years," said Susan Farrell, Houston representative for PFC Energy (formerly the Petroleum Finance Co.), based in Washington, D.C. "The oil fields are sprinkled all along the country's eastern side, right in the path of where the military strikes are planned," she told the Houston Producers' Forum. PFC posits three scenarios. In the first, the war is contained to Iraq, with a moderate and short-lived oil price impact. Less than 2 million barrels per day are taken off the market-and OPEC is able to replace all of that. A second scenario calls for a limited effect that spills over to the shipping lanes of the Persian Gulf, and 2- to 3 million barrels a day are removed from the market. Depending on how long this lasts, OPEC may replace most of the oil, and/or country stockpiles such as the U.S. Strategic Petroleum Reserve may be drawn down. "The third scenario, which PFC thinks is least likely, is a regional war with more dire consequences for the world. This possibly would include a disruption to the Saudi oil fields, which would have an enormous impact, both in real terms and psychologically. Prices would go through the roof." The plan after the war? An Iraqi elite backed by the U.S. or U.N. would supervise the oil industry, with Iraqi technocrats actually operating as before. Various experts believe that it could take a long time, and many billions of dollars, to revive, let alone increase, Iraqi production. "It might take a new regime a year or so just to get things organized and begin to negotiate contracts. When it does, it will have to face the deteriorating condition of the Iraqi oil industry," said Daniel Yergin, chairman of Cambridge Energy Research Associates, in a December op-ed piece in The Washington Post. "To get back to 3.5 million barrels a day could take three years or more, at an estimated cost of at least $7 billion. As its output increases, Iraq would begin jostling with its neighbors for market share, but it would not have the ability to 'flood' the market. Nor the desire. Its intense need for revenues would make it much more interested in oil at $20 or $25 a barrel, rather than a cut-rate $10." "The return of Iraqi production is one of several challenges OPEC will face," Farrell said. "These trends make the present OPEC-10 strategy of price defense unsustainable: lower global demand growth, more non-OPEC investment due to high oil prices, and uncertainties in Iran."