- The Washington Times - Friday, April 25, 2008

Senate Democrats moved yesterday to put pressure on Saudi Arabia and other Persian Gulf oil states to increase oil supplies and bring down prices, saying they will block military sales to those OPEC countries unless they do.

The move appears aimed at giving the administration some leverage as it deals with the Gulf states, which are the only Organization of Petroleum Exporting Countries members with the capacity to pump significantly more oil. President Bush recently warned the region that high oil prices are plunging their “best customer” into a deep economic slump.

“We have a strategic partnership with the Saudis, but it seems to me a partnership works two ways,” Sen. Byron L. Dorgan, North Dakota Democrat and chairman of the Democratic Policy Committee, told reporters at a Capitol Hill press conference. “The Saudis want to purchase sophisticated weapons from our country. … They should understand there are certain things we need from them as well.”

The move came as gasoline prices continued to climb to new records, hitting $3.56 for regular gas nationwide, according to a survey of stations by AAA and the Oil Price Information Service. Besides pressuring OPEC to increase supplies, Mr. Dorgan said he will attach an amendment to the farm bill to curb speculation that is driving up the price of oil and food commodities in the futures markets.

“I think there’s excess speculation in the futures markets,” he said. “We’re working on a lot of different approaches,” including barring the administration from filling the Strategic Petroleum Reserve when prices for fuel are so high.

The White House was cool to the idea of boycotting $14 billion of sophisticated arms sales to Saudi Arabia and the United Arab Emirates. The Democrats said that nearly half the House and Senate have signed on to a resolution against the sales, which they said could not be replaced by China or Russia if the U.S. backs out of the deals.

“Once again, the Democrats are barking up the wrong tree,” said White House spokeswoman Dana Perino. “Arms deals are not favors that we do for friends; they are in our national strategic interests and something that we work closely with Congress on.”

At the same time, White House National Economic Council director Keith Hennessey acknowledged that oil prices approaching $120 a barrel in recent days pose a potent threat to consumers and the economy, and could be helping to throw the economy into recession.

Mr. Bush made a personal plea for more oil in a trip to the Middle East earlier this year, but got no visible response. Rather than increasing production, Saudi Arabia has cut production by 800,000 barrels to 8.7 million barrels a day since 2005.

Saudi Arabia announced this week that it seeks to ease high prices by making $90 billion of investments over the next five years to maintain 2 million barrels of surplus capacity to produce oil in the future. In a world that consumes 84 million barrels of oil a day, the slim cushion of excess capacity — most of which resides in Saudi Arabia — is often cited as a reason for high prices.

“Limited capacity along the entire supply chain is the real source of current global supply tightness,” Saudi Arabian Oil Minister Ali al-Naimi said in a speech at the International Energy Forum in Rome on Tuesday.

“The kingdom has always stood as a force for moderation in the petroleum markets,” he said. “We work very hard to make sure that the global oil market is well supplied and well balanced, and to that end we continue to maintain a spare production capacity of roughly 2 million barrels a day to be used when there is an unexpected need.”

The country is also doubling its oil-refining capacity to 6 million barrels a day, enabling it to process about half the oil it produces into gasoline and other fuels, he said. Limited refinery capacity is a principal reason that gas prices rise steeply in the spring in the United States as refineries strain to produce the super-refined fuels required during the peak summer driving season.

Congress is under increasing pressure to act as the public fumes about high gas prices. Sen. Charles E. Schumer, New York Democrat, said the huge rise in the cost of oil and gas this year is negating the boost to the economy that Congress intended to provide through $100 billion of tax rebate checks this summer.

“The stimulus check families receive in the mail next month will probably go to pay eye-popping gas and grocery bills this summer,” he said. “The bottom line is that the whole Bush tax cut for middle-class families this year will line the pockets of OPEC.”

Last week, the administration also was cool to a remedy proposed by Sen. John McCain, the likely Republican nominee for president. The Arizona Republican suggested enacting a holiday from federal gas taxes this summer to temporarily lower gas prices during the vacation season.

Mr. Hennessey, the White House official, said the administration remains focused on the long-term solutions to the country’s energy problems, including increased production of conventional and alternative fuels and higher fuel-efficiency standards for cars, appliances and buildings.

Most members of the Organization of Petroleum Exporting Countries are pumping oil at full tilt. Only Saudi Arabia has substantial surplus capacity.

Figures in millions of barrels per day

Supply* Sustainable production capacity Spare capacity

Algeria 1.40 1.40 0.0

Indonesia 0.87 .88 0.01

Iran 3.93 3.98 0.04

Kuwait 2.58 2.62 0.04

Libya 1.76 1.82 0.07

Nigeria 2.01 2.47 0.46

Qatar 0.83 0.90 0.07

Saudi Arabia 9.10 10.84 1.74

United Arab Emirates 2.59 2.85 0.26

Venezuela 2.44 2.50 0.06

Angola 1.76 1.76 0.0

Ecuador 0.50 0.50 0.0

Iraq 2.37 2.4 0.03

OPEC total: 32.12 34.91 2.78

* As of February

Source: International Energy Agency

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