- The Washington Times - Friday, August 13, 2004

The Bush administration is stepping up its criticism of Russia’s crackdown on oil giant Yukos, a major factor driving oil prices to record levels this summer.

The move comes amid criticism of the administration for not doing much to stop oil’s relentless march to more than $45 a barrel as spiraling demand collides with dwindling supplies worldwide.

Oil’s climb to new highs each day has been drubbing the stock market and slowing economic growth. Yesterday, the Dow Jones Industrial Average plunged 124 points to 9,815 as premium crude hit a new record of $45.50 on the New York Mercantile Exchange.

The Nasdaq Composite Index dropped to a new low for the year, despite signs in a Commerce Department July retail-sales report of a modest revival among consumers battered by high gasoline prices.

The Yukos affair has become a major factor roiling the markets. National Security Adviser Condoleezza Rice voiced strong concern about the situation last weekend in a telephone call to Dimitri Medvedev, chief of staff to Russian President Vladimir Putin.

Similar messages to Russia were expected in coming days from Secretary of State Colin L. Powell, Commerce Secretary Donald L. Evans and Energy Secretary Spencer Abraham.

China, whose daily oil shipments from Yukos have been threatened by legal wrangling over $3.4 billion in back taxes owed the government, also has lodged a protest with the Kremlin.

Russia’s Justice Ministry has seized Yukos’ assets and is preparing to sell its main oil-producing unit in Siberia to recover payment of the taxes. Yukos Chief Executive Mikhail Khodorkovsky, a political opponent of Mr. Putin, was arrested in October and jailed on tax-evasion charges.

“We are concerned that the rule of law and due process be respected without influence from political consideration,” State Department spokesman Adam Ereli said yesterday.

“The way the case has been handled raises questions about respect for investment rights in Russia, and has led to increased capital flight and a decline in new investment that is certainly having an impact on the Russian economy.”

Russian authorities did not respond to the criticism yesterday. But they announced in Moscow that they will involve a Western investment bank, Dresdner Kleinwort Wasserstein, in the sale of Yukos assets, easing fears of a fire sale of the company.

Despite having a purportedly close relationship with Mr. Putin, President Bush has not openly criticized the Kremlin’s assault on Yukos since it began a year ago.

Administration officials privately expressed little concern about the Yukos affair before it started to affect oil prices last month.

But as oil prices have climbed higher in recent weeks, polls show substantial majorities of Americans are closely watching the high price of gasoline, which has dropped slightly in recent weeks, while disapproving of the way Mr. Bush is handling economic problems.

Democratic presidential candidate Sen. John Kerry of Massachusetts yesterday stepped up criticism of Mr. Bush for seemingly having no plan to stop oil’s upward trend.

“It is increasingly apparent that the Bush energy policy is failing,” said Chad Clanton, Kerry campaign spokesman, noting that even a promise of more oil production from the world’s largest oil exporter, Saudi Arabia, on Wednesday failed to halt oil’s rise.

“The only plan Bush seems to have is relying on his Saudi friends to boost their production,” and that has proved to be inadequate, he said.

The administration also has declined repeated calls to release oil from the Strategic Petroleum Reserve. Instead, it has continued to purchase reserves at a furious rate despite sky-high prices and frequent disruptions of oil production in Iraq.

The Bush strategy on oil reserves has drawn criticism from oil analysts and even some prominent Republican economists, who say it has been counterproductive and is helping to drive up prices.

“We need a change in energy policy. … The [reserves] should be used now,” said Lawrence Kudlow of Kudlow & Co, usually a Bush booster. “I don’t know why the Bushies are so stubborn on this point.”

As much as $15 a barrel has been added to oil prices this year because of the threat of terrorist attacks in Iraq and Saudi Arabia, and that should be enough of an excuse for the administration to act, he said.

“Right now, we have let the terrorists interfere with our monetary policy, our stock market and our economy. What better reason could there be” to use the reserves? he said.

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