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White House Takes Soft Line on OPEC in Hope of More Oil

Neela Banerjee.
Produced by
The New York Times

When the Organization of the Petroleum Exporting Countries convenes tomorrow in Vienna, it will probably decide against increasing the amount of oil it supplies the world market. A year ago, such a move would have elicited an aria of outrage from Washington.

Not so now. The Bush administration, at least publicly, has absolved OPEC of any role in pushing up fuel prices and instead blamed a limited refining capacity at home. Unlike the Clinton team, which interrupted OPEC meetings and infuriated its members with cell phone calls demanding action, the Bush White House has opted for a gentler approach to its key oil-rich allies, particularly the Persian Gulf states.

The White House is gambling that such low-key rhetoric will help it achieve a variety of intertwined goals, in the Middle East and back home, analysts said. In particular, being friendlier with OPEC, especially Saudi Arabia, the cartel's de facto leader, may in the end deliver more oil to the United States, which could send fuel prices lower in the coming months, administration officials think. The Saudi oil minister, Ali al-Naimi, hinted as much during an April visit to Washington, the analysts said.

Ari Fleischer, a White House spokesman, demonstrated the new tone with reporters on Friday. "There are quiet, diplomatic conversations going on with our OPEC allies to remind them that we are an interdependent economy and that we all have an interest to make certain that the prices don't spike up."

The administration's critics, including former Clinton aides, point out that so far, the Bush administration has been rewarded with only production cuts, not increases.

The Bush administration apparently also hopes to restore what it sees as the United States' damaged credibility in the Arab world ? tattered, many analysts have said, by sanctions against Iraq and unsuccessful efforts to ease the conflict with Israel. That credibility is aided by the presence of the political stars of the Persian Gulf war, Secretary of State Colin L. Powell and Vice President Dick Cheney, who both are said to favor a milder approach to OPEC.

Finally, by casting high gasoline prices as purely a domestic problem, the Bush administration can argue more forcefully for pet energy projects in the United States, such as the relaxation of environmental requirements to increase refining capacity or the opening of federal lands to oil drilling.

OPEC officials have suggested that, this fall, they might consider reversing their production cuts of January and March. In the meantime, the price of crude oil will probably hover in its current range of $27 to $29 a barrel, oil traders said ? a level OPEC is delighted with and the United States resigned to, unless it sends the global economy tumbling.

"Whenever oil prices go up as they did last year, it is followed by a recession or a subpar economy," said Cyrus H. Tahmassebi, president of Energy Trends, a Bethesda, Md., consulting firm. "And that's not even in OPEC's long-term interests."

Only a year ago, when gasoline prices jumped to more than $2 a gallon in some regions, then-Governor Bush said the government could damp prices by pressing oil-producing countries to "open up the spigot," a task he said the Clinton administration had bungled. Gasoline prices are now $1.74 a gallon, compared with $1.58 at this time last year. But on Friday, Mr. Fleischer said only that President Bush wanted oil prices to "come down," without elaborating.

Despite the fist-shaking campaign rhetoric, analysts said that traditional allies like Saudi Arabia and Kuwait were cheered by a Bush victory, thinking the combination of oil men and gulf war leaders in the administration would breed greater sympathy for Arab countries. "Powell and Cheney are respected by virtually everyone in the region," said J. Robinson West, chairman of the Petroleum Finance Company, a Washington consulting group. "There's so much personal good will toward them and to Bush's father."

The Bush administration has, so far, delivered on that good will. Mr. Cheney has said repeatedly that there is plenty of crude oil in the United States, and that the low inventories of gasoline that have led to higher prices stem from not enough refining capacity.

Energy Secretary Spencer Abraham, articulating the administration's views on OPEC, said in an interview last week, "We reject privately begging or publicly bashing to get more oil."

Such pronouncements find favor with OPEC leaders. "They have gone out of their way to point out that OPEC's policies are not to blame for the current situation, and we welcome their sincerity with the U.S. public," said Ali Rodriguez, the secretary-general of OPEC, in early May. OPEC, a 10-member cartel, produces about 40 percent of the world's oil.

No one will reveal what the administration told the Saudis privately in April. But experts said the Saudis appreciated the White House's hands-off public posture. Moreover, the Persian Gulf countries think this administration is more comfortable with oil at around $20 a barrel than the Clinton administration was, Mr. Tahmassebi said. High oil prices also help the United States oil companies, which made record profits last year and are loyal Bush backers.

Several American oil companies, led by Exxon Mobil, were awarded contracts last week worth billions of dollars to develop large natural gas fields in Saudi Arabia. It was the first time since the mid-1970's that foreign oil companies have been allowed into the country.

Supporters of the new White House approach to OPEC said the diplomacy bolsters ties with individual members rather than with the entire group, as some in OPEC have cool relations with the United States. The focus of the charm offensive is clearly Saudi Arabia, the cartel's largest producer and among the largest exporters of crude oil to the United States. Last year, even before President Bush was elected, his father called on Saudi leaders in Riyadh.

Mr. Naimi implied after the April meeting that Saudi Arabia would produce more oil if high prices and market demand warranted. That would prove crucial now that Iraq, long chafing under United Nations sanctions, has threatened once more to take its oil off the world market.

While Bush supporters count on the Saudis to make up any Iraqi shortfalls, skeptics point out that the Saudis have long been the "swing" producers. Even such allies have their own agendas, mainly to get as much in oil revenue as possible to prop up their one-note economies, and United States overtures will hardly sway them, these critics say.

In fact, last year, OPEC raised production despite anger over the Clinton administration's admonishments, mainly because the group, especially the Saudis, thought prices had risen so high that they threatened economic growth. Others also point out that so far, friendliness to OPEC has yielded only a 2.5 million barrel a day reduction in output since January.

"Given the approach taken by then-Governor Bush a year ago in the campaign, he established the expectation that once in office, OPEC would be more likely to increase production," said Ronald E. Minsk, an energy adviser to former President Bill Clinton. "And even if they have been having discussions in private, all they have to show for it now is a big production cut."

To prevent future gasoline price increases, the administration has argued for relaxing clean air standards to allow for the expansion of existing refineries and the construction of new ones. The White House also wants more oil production in the United States to reduce reliance on foreign sources. The United States, however, has little of the world's oil reserves. Most are in the Persian Gulf. And prices here, as elsewhere, are determined by the world market, which is heavily influenced by OPEC's decisions.

"Bush has signaled with his energy policy that there are a lot of things we could do on our own without ever calling on OPEC," said Adam E. Sieminski, a senior oil analyst with Deutsche Banc Alex. Brown. "But I'm inclined to believe that OPEC shares at least half the blame if there is blame to go around. If there had been more crude, we would probably have more petroleum products."

(c) Copyright: The New York Times

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