Oil prices are rising as President Bush and Iraqi dictator Saddam Hussein see who can rattle their sabers the loudest. As the war rhetoric builds, paving contractors have to deal with the resulting price increases for liquid paving asphalt. Since last March, ENR's 20-city average price for paving asphalt has increased 14% to $162 per ton.

War jitters are adding an average $4 premium on the price of a barrel of oil, says Bruce Cavella, oil analyst for the forecasting firm DRI-WEFA, Lexington, Mass. Since the beginning of the year, the price of the benchmark West Texas Intermediate crude oil has steadily increased, and by August, it was 47% above last December's level, says Cavella. "As long as the possibility of war with Iraq exists, prices will remain around $30 per barrel," he says.

The impact of higher oil prices has yet to fully impact the price of bituminous concrete, according to the Bureau of Labor Statistics. In July, the BLS producer price for bituminous concrete was up only 2.2% for the year. However, DRI-WEFA predicts that it will increase 1.2% during the third quarter and another 0.8% increase in the fourth quarter.

Granite Construction Co., Watsonville, Calif., has seen a 5 to 10% increase in the price of liquid asphalt in the third quarter alone. In the Bay Area, the price has reached $170 per ton, up $30 to $40 per ton from a year ago, says James H. Roberts, Granite's vice president of branch operations.

The asphalt paving market is being hit from both sides, says Hank Waggoner, chief financial officer of Lakeside Industries, Issaquah, Wash., the state's largest paving contractor. Rising oil prices have pushed the price of liquid asphalt to $190 per ton, a 46% increase over what Lakeside was paying a year ago. "We are caught in a classic pinch," he says. "At the same time prices are rising, paving work in the area is drying up."