War drew closer as Iraq's President Saddam Hussein defied a U.S. ultimatum to quit before 9 a.m. Singapore time. Hostilities will start with a short, intense air campaign and ground assaults on multiple fronts, U.S. officials said.

Crude oil prices fell as much as 1.7 percent in after-hours electronic trading in New York, extending the fall in six days to as much as 22 percent. The risk that U.S. war plans don't unfold as expected could still lead to a rebound, investors said.

"The markets are biased towards an optimistic scenario ­ that's the real risk," said Pieter Bruinstroop, who manages investments in resources companies for APS Asset Management Ltd., with $600 million of assets in Asia. "What happens if things do not go as everyone expected? That's what the markets are missing at the moment."

Crude oil for April delivery fell as much as 50 cents to $29.38 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It traded at $29.53 a barrel at 9:52 a.m. Singapore time. Yesterday, oil fell $1.79, or 5.7 percent, to $29.88 a barrel in regular floor trading, the lowest closing price since Dec. 13.

Oil prices may fall further, "subject to the optimistic forecasts that the war should be finished in a very short time," said Tetsu Emori, a commodity strategist at Mitsui Bussan Futures Ltd. in Tokyo.

Previous War

New York prices peaked at a record $41.15 a barrel in October 1990 after Iraq invaded Kuwait, cutting exports from the two nations. Oil then plunged by a third on Jan. 17, 1991, after U.S.- led forces began their air attack on Iraq, reducing Hussein's threat to neighboring oil producers. The high this year was $39.99 a barrel on Feb. 27.

"The markets have priced in perfect execution of the conflict despite more rumors about Iraqi defenses which again include stories about mining the oilfields," said Simon Games- Thomas, an independent energy analyst in Sydney, said in a report.

War planners from the U.K. and senior Kuwait Oil Co. executives said last month they are studying how to take control of Iraq's oil wells. Hussein told the U.S. television network CBS he won't destroy the wells.

"There are rumors floating around that Saddam Hussein has mined the oil fields and will blow them up as he did to Kuwait's fields" in 1991, said Peter Beutel, president of Cameron Hanover Inc., an oil and gas consulting company in New Canaan, Connecticut. "Iraq insists that it won't do anything of that nature, but that's a wild card and it's still a possibility."

The U.S. and U.K. have deployed more than 250,000 troops in the Persian Gulf in preparation for war. Bush delivered his ultimatum as France and Russia led calls for the United Nations Security Council to extend inspections to verify that Iraq is giving up banned weapons.

Military Success

"If military success is established in the first few days of any campaign, and no oil fields are lost, the market has the potential to drop substantially, toward $22-$25 a barrel," said Beutel.

Oil prices also fell yesterday after the American Petroleum Institute reported a 5.1 million-barrel rise in U.S. crude-oil inventories. Supplies are still 15 percent lower than a year ago, it said. The Energy Department reported a smaller 400,000-barrel increase.

"Oil is fast approaching a buy because if the war doesn't run to plan oil will flick back up," said David Thurtell, commodities strategist at Commonwealth Bank of Australia. "I wouldn't be so concerned if world commercial stocks were high but they're really low, especially in the U.S."

The Organization of Petroleum Exporting Countries, which pumps a third of the world's oil, faces a challenge in limiting the impact of a war in Iraq without permitting prices to fall too far after hostilities have ended.

"OPEC has got a big issue," said John Waterlow, an analyst at Wood Mackenzie Ltd., an oil consultant in Edinburgh, Scotland. "They're going to have to produce more oil to make up for Iraq, and they are going to have to turn it off pretty quickly."

OPEC has said it will boost output to meet any shortage caused by war. A brief conflict that does little damage to Iraqi oil fields, coupled with an annual decline in demand during the Northern Hemisphere's spring, may leave to much oil on world markets and cause prices to fall.