Turmoil on the world oil market this year due to conflict in the Middle East may prove to be the saving grace for the car that was rolled out after the oil crisis in the 1970s and runs on cane-based 96-proof hydrous ethanol, or alcohol.

Although memories of the 1989 shortage still make most Brazilians skeptical about alcohol-fueled cars, the Brazilian government hopes that signs of international demand for alcohol and prospects for a record harvest in the world's No. 1 sugar cane grower can bring the vehicle back from the junkyard.

"We want to revive the alcohol program. Japan, China and India are seriously thinking about importing alcohol and technologies from Brazil, which has the fame of (being both) pioneer and expert in this sphere," Trade, Industry and Development Minister Sergio Amaral told Reuters.

"It doesn't make sense starting it all over again just for exports. It has to be for consumption in our cars too."

Leading economies, including the three major Asian powers and the United States, are blending or planning to blend pure, clean-burning alcohol with gasoline in the wake of recent international treaties on greenhouse gas emission reduction.

The United States uses ethanol in 12 percent of its fuel, mostly at a blend of 10 percent ethanol. Brazil has been mixing anhydrous ethanol with gasoline for use in all cars for years.

CARMAKERS WANT TAX INCENTIVES

But Amaral may have to do some juggling of interests among carmakers and sugar millers to kick-start his ambitious plan.

Previous attempts by Latin America's largest country to revive the program failed due to alcohol price increases when crops were small, as well as the government's clumsy efforts to push automakers into raising output of alcohol-fueled cars.

Car producers, who are working at 60 percent of capacity due to a sluggish local economy, now say they are happy to make anything that would sell. But they say it will require tax incentives to overcome consumers' reluctance to buy the cars.

"The problem is that consumers have ceased opting for alco cars," said Ademar Cantero, director of the Anfavea automakers association. "We need a coherent, long-term policy that would guarantee supply and get the consumer interested via an attractive price, which can be done through tax incentives."

Amaral did not say if the government would offer any additional tax incentives for alcohol cars, which already enjoy what he said was a hefty discount compared with taxes levied on normal cars.

"Car makers have assured me that they will produce more if the government guaranteed alcohol supplies," he said.

Automakers say a hybrid alcohol-gasoline car would be ideal for the market. Fledgling technology known as flex-fuel allows motorists to choose the type of fuel to use depending on the price or other considerations.

U.S.-based Ford Motor Co , one of Brazil's top four carmakers, has already presented a prototype capable of using either gasoline, alcohol or any alcohol-gasoline blend.

Ford officials declined to say when regular production of these cars might begin in Brazil, adding that they are hoping for incentives to make the car attractive to customers.

Alcohol motors present some drawbacks. Even though alcohol is cheaper than gasoline, it burns more rapidly than the fossil fuel. That means cars fitted with alcohol engines are best equipped with oversize fuel tanks, which cost more. In addition, alcohol-fueled cars need special fuel pumps and injection systems, which make them more expensive to produce.

Alcohol cars also don't start well in cold weather.

Anfavea's Cantero said sales of alco-cars had doubled in the past four months to 12,500 units from year-ago levels, but that the rise was driven by tax incentives for taxis, motorists in alcohol-producing regions and government "green fleets".

SUPPLY SIDE LOOKS BRIGHTER AS SUGAR MILLERS SIGN UP

The government is focusing on the fuel supply side of the problem to ensure that planned strategic stocks of alcohol will bring back consumer confidence and kick-start a revival of the alco-car.

Eduardo Pereira de Carvalho, president of the Sao Paulo Cane Agroindustry Union, said sugar producers had agreed to finance a stock of some 10 percent of the market, where annual consumption now stands at about 10 billion liters.

"We've been working on it for two months and are now signing things," he said, adding that despite hopes for a market abroad, it would take years to set up and so the focus for the time being would be on the domestic market. "It is easier to recover a market than create a new one," he said.

Lyndsay Jolly, analyst at the London-based International Sugar Organization, expects production to rise to over 13.3 billion liters this year from 11.5 billion in 2001, adding that Brazilian producers would try to develop the alcohol market to minimize the impact on sugar prices from a massive cane crop.

Some experts say the tide began to turn against the alcohol program in the 1980s after the discovery of oil off Brazil's shores. That reduced the government's fervor for greener fuel and led to a phasing out of incentives for alcohol producers.

Others blame the crisis on cane millers who opted to sell sugar abroad instead of alcohol at home when sugar prices went up. The industry denies the charges and pins the blame on distribution problems and strikes by workers at the time.

Carvalho said producers could now guarantee sufficient ethanol thanks to idle capacity of 5 billion liters a year and a more flexible market. An alcohol blend in gasoline of between 19 and 26 percent means some 1.5 billion liters could be supplied or withdrawn from the market as the crop fluctuates.

He noted that ethanol prices had been stable over the past two years and were now 40 percent lower than those for gasoline, enough to win consumers over despite the need to buy more.

Amaral said the government could maintain the attractiveness of alcohol via taxes and could tax sugar exports if necessary to ensure ethanol supplies.

"So there's no possibility that ethanol production can't meet demand," Carvalho said.

Brazil still has a fleet of some 3 million aging alco-cars and a big alcohol distribution network. "We have a great national asset, which is the enormous network of ethanol filling stations that no other country has," Amaral said.

Even state oil giant Petrobras (PETR4.SA says it can benefit from the program via its fuel distribution network that includes alcohol pumps, and exports of excess oil abroad. "We think it's a good opportunity if there is a competitive market for alcohol," said Petrobras president Francisco Gros.