Wednesday, September 20, 2000

Top Clinton officials, amid mounting pressure from Congress, said yesterday that any attempt by Iraq to disrupt world oil supplies and send prices higher would trigger a response by the United States and Saudi Arabia to fill the gap.

Iraq’s renewed threats against Kuwait sent crude oil prices soaring to a new 10-year high over $37 a barrel on Monday and yesterday prompted heated criticism in Congress that the administration has left oil prices and the U.S. economy vulnerable to the renegade regime’s whims.

After meeting with legislators, Energy Secretary Bill Richardson said the United States might move to tap the 571-million-barrel Strategic Petroleum Reserve if oil prices hit $38 a barrel a level he said was “dangerously high” and would trigger an administration response.

“This is very dangerous,” said Senate Majority Leader Trent Lott. “We see now [Iraqi President] Saddam Hussein is threatening to cut off oil and supply… . They’re threatening Saudi Arabia and Kuwait… . I think it’s a national security issue and it should have an effect on the election.”

The Mississippi Republican’s worries were echoed in a hearing of the Senate Armed Services Committee yesterday, where top Clinton aides were grilled on the Iraq situation and prominent Democrats questioned whether the administration has done enough to prevent this year’s energy crisis.

“Who’s got who in the box on this?” demanded Sen. Edward M. Kennedy, Democrat from Massachusetts, where consumers face skyrocketing heating bills and possible shortages of home heating oil this winter.

“What are you doing to help us or to try and give some kind of explanation to people that are suffering?” Mr. Kennedy said. “It isn’t going to take long. It’s going to be the diesel oil for the truckers; it’s going to be the farmers that are going to be affected; it’s going to implicate the whole economy.”

Edward Walker Jr., assistant secretary of state for Middle Eastern affairs, responded that the administration has coaxed Middle Eastern oil exporters to increase production by about 1.5 million barrels a day this year. But he acknowledged that has not been enough to keep prices from soaring.

He and other top Clinton officials said the administration is prepared to take action on its own to relieve the pressure on prices if Saddam persists in his threats.

“There could be an effort to disrupt the oil market, although … I don’t think it is a very realistic threat,” Mr. Walker said, because Saudi Arabia has pledged to step in and increase production of crude oil if Iraq withdraws some or all of its 2.4 million barrels a day from world markets.

“Furthermore,” he said, “in our petroleum reserves, we have the capacity to cover a gap which is significantly larger than any gap that Saddam Hussein could possibly take in his oil income.” Iraq is dependent on the $20 billion it earns each year from oil sales to prop up its failing economy.

The administration officials argued that Iraq is not likely to do anything beyond its rhetorical threats because doing so would precipitate a harsh response from oil-consuming nations and deepen the sanctions and notoriety already weighing on Iraq.

“The price of oil at $38 is dangerously high,” Mr. Richardson told reporters after meeting with more than a dozen lawmakers from Northeastern states who are demanding the release of oil from the reserves, which are located near refineries in Louisiana that feed fuel to the East Coast.

“The president will not hesitate to take action to protect the American people,” he said. While prices came close to that level on Monday reaching $37.15, the highest level since Iraq invaded Kuwait in 1990 crude prices yesterday declined a little to $36.51 a barrel on the New York Mercantile Exchange.

Mr. Richardson stressed that the administration is setting up a special heating oil reserve for New England, which is a must-win region for Vice President Al Gore if he is to secure the presidency. But that did not keep legislators from criticizing the administration’s handling of the oil crunch.

“Right now, the squirrels are better prepared for the winter,” said Rep. Edward J. Markey, Massachusetts Democrat.

Mr. Lott said the president can tap the strategic reserves only if an emergency arises that disrupts oil supplies, but some analysts expect the administration to act if prices get painfully high.

“If there’s no supply disruption, all the president could say is prices are too high, and that sets a precedent” that would be criticized, said John Lichtblau, analyst with the PIRA Energy Group in New York.

“But I don’t think anybody in Congress would object if it drives down the price of oil or keeps it from rising. Who’s going to be opposed to it?” he said.

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