- The Washington Times - Friday, February 25, 2000

Gulf oil ministers Thursday signaled a possible break in the economic and political heat caused by rising oil prices by agreeing to increase production to stabilize international markets.

The decision at a meeting in Saudi Arabia came after mounting criticism and pressure from U.S. and European officials, who warned that lasting economic damage could come from the relentless rise of oil prices, which have been hovering around a nine-year high of $30 a barrel.

Officials indicated Thursday that most Gulf oil ministers had agreed to increase production at the Saudi meeting Wednesday, but had not agreed on how much. They will meet March 27 with other members of the Organization of Petroleum Exporting Countries to agree on a new production goal.

In a statement, the ministers "stressed their countries' desire to maintain the market's stability in the coming period in cooperation with other producing nations."

Just how much more oil they will pump remains under dispute. A senior United Arab Emirates oil official said an OPEC production increase will be gradual and will be around 1.5 million barrels a day. "After that, it's the market's call," he said.

While that would amount to a 6 percent increase above the current limit of 23 million barrels a day, some analysts have said an increase of at least 2 million barrels a day is needed to stabilize markets and make a sufficient effect on stocks of oil to lower prices.

Even if the 11 OPEC members decide to increase production after the March 31 expiration of last year's production agreement, the move would not lower gasoline prices in time for the busy summer travel season.

In the Saudi capital of Riyadh, Gulf officials said Wednesday that ministers favor an increase in production of between 2 million and 2.5 million barrels a day about 8 percent to 10 percent to reach a price of between $20 and $25 a barrel.

Officials from Saudi Arabia, the world's largest oil exporter, say their government wants to draw prices down to that range.

Kuwait opposes any production increase, however, and so does Iran, the second-largest OPEC producer.

The stakes are high for the United States and other Western nations. The tripling of oil prices caused by OPEC's cutbacks a year ago raised a potent threat of inflation, forcing central banks in the United States and Europe to raise interest rates and dampen growth.

Recently, signs have emerged that the oil-price increases could be causing a larger inflation problem, as airlines and other transportation companies cite higher fuel costs in raising their ticket prices and imposing surcharges.

A popular backlash also has been building, leading to a pletho a of proposals by the Clinton administration and legislators in Congress to alleviate higher oil prices by cutting gas taxes and providing subsidies for home heating oil.

Motorists are grumbling at gasoline prices averaging more than $1.40 a gallon, while independent truckers staged a protest Tuesday at the Capitol demanding relief from diesel taxes to cope with the soaring fuel costs that they say are strangling business.

With the political heat turned up, President Clinton has issued strong private and public warnings to allied producers and this week dispatched Energy Secretary Bill Richardson to the Middle East to obtain producer commitments to raise output.

European leaders similarly have warned oil exporters about the destabilizing effect of high oil prices, which threaten rebounding growth in Europe.

While Mr. Richardson has been taking what he describes as a "friendly" and diplomatic approach to cajole Gulf states to increase production, some members of Congress have bluntly threatened to retaliate against OPEC members by withdrawing financial and military assistance.

"It really bothers me that we have to go beg OPEC. We just saved their necks … and now we are being repaid for our generosity," said Sen. Ben Nighthorse Campbell, Colorado Republican, who introduced a bill Thursday to repeal the 24.4-cents-per-gallon federal tax on diesel fuel.

"We cannot let this nation come to a standstill because we are a captive of a foreign oil cartel."

Mr. Campbell's bill received backing Thursday from Senate Minority Leader Tom Daschle, South Dakota Democrat, and Senate Majority Leader Trent Lott, Mississippi Republican, who also took the occasion to deplore the way OPEC has been "rattling the cage" of Americans thirsty and dependent on imported oil.

Sen. Robert G. Torricelli, New Jersey Democrat, said Thursday he will introduce legislation this week asking for a six-month suspension of the diesel tax.

The rumblings in Washington have been heard halfway around the world in Saudi Arabia, said one international analyst, who fears that the latest round of oil-price increases could cause significant economic damage in the United States.

"There is no doubt that strong U.S. pressure on key producing countries will result in an OPEC production increase," he said. "Saudi officials are alarmed at calls by normally supportive U.S. politicians from both parties for punishing OPEC members."

Mexico, whose economy is closely tied to the United States, would not want to see steep interest rate increases that cause Americans to significantly cut back spending. It has been the strongest proponent of near-term production increases within OPEC, the analyst noted.

But OPEC nevertheless is likely to be cautious in deciding to increase production at its March 27 meeting in Vienna, Austria, because it "fears a return to $10 oil prices" that nearly bankrupted some oil producers a year ago, he said.

The production increase most likely will not be enough to prevent a surge in inflation this spring stemming from the latest jump in oil prices, the analyst said. He added that means another round of steep interest-rate increases may be in store which will surely jolt the stock market.

"The U.S. and European Union are only just beginning to feel the new round of oil price rises" and many investors and consumers are likely to be surprised by more unpleasant news in the months ahead, he said.

John Godfrey and Julie Hyman contributed to this story, which is based in part on wire service reports.

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