Oil, Iraq, and the airlines

Posted: Sep 05, 2002 12:00 AM
WASHINGTON -- A middle-level official for one of America's hard-pressed airlines two weeks ago looked at the aviation fuel situation and fired off a confidential memo to a colleague: "I am afraid President Bush is going to be a one-term president, like his father. The U.S. economy does not need $30 (a barrel) oil. I can see the (gasoline) lines again. 'It's the economy.' Iraq will bring down another president." The writer of this anguished prose is no political expert, and his death sentence for George W. Bush is at least premature. What he is expert about is the global fuel situation, and he doesn't like two activities by the Bush administration. First is the Department of Energy's continued purchase of oil for the Strategic Petroleum Reserve (SPR). Second is the beating of war drums in preparation for an attack on Iraq with incalculable impact on oil prices. The anguish is not limited to one airline executive or, indeed, to even the airline industry (though its economic miseries would be compounded by an upward spike in oil prices). Fretting over oil explains some of the stock market malaise and the morose outlook by investors. If the Bush administration is alert to this situation, there is no sign it is doing anything about it. The decision by Energy Secretary Spencer Abraham of steadily pouring oil into the SPR to near its capacity of 700 million barrels may seem ironic in view of past Republican criticism of the reserve as an interference with markets. It is an indirect and understandable byproduct of the 9-11 terrorist attacks, aimed at giving the United States an insurance policy against calamities shutting off the course of oil. Nevertheless, the government's purchase of $30 oil astounds private sector analysts, who believe that supplying the SPR has contributed significantly to the summer's boost in crude oil prices. To these business economists, the administration is oblivious to what it is doing to the market. That issue surely is not on the top of its priorities. This government intervention comes at a time when oil prices are being boosted by both the known and the unknown in the Middle East. The known is President Bush's firm commitment for a "regime change" in Iraq, which has already reduced Iraqi exports by more than 1 million barrels and surely will cost more if and when it comes to war. The unknown is what impact it will have among other oil-producing countries. The petroleum market is "spooked by all the war talk," in the words of one analyst. The atmospherics of U.S. Iraqi policy -- disclosure of alleged Pentagon secret war plans and criticism by the other NATO members -- have further roiled the oil market. The overriding problem is that the world today needs more, not less, oil at a time when global environmentalists are aligned against boosting production. That is reason enough for the Bush administration not to risk its Saudi Arabian oil supply by joining the conservative Republican campaign against the royal regime. Political instability in Venezuela poses another potential reduction. While Bush is criticized for snuggling up to Russia's President Vladimir Putin, Russian oil exports have prevented perhaps another $5 raise in oil prices. What the Bush administration can do about this situation is limited. Private oil purchasers would like the heat put on friendly countries like Mexico and Norway to stop cooperating with the OPEC cartel. That is much easier said than done, and of doubtful effectiveness. The government's upward pressure on oil prices could be eased by not filling up the SPR, but that step too seems unlikely. While Democratic Sen. Charles Schumer of New York wants the government to put some of its oil reserves on the market to stabilize oil prices, the White House on Aug. 20 reiterated that Bush has no such intention. Instead, White House spokesman Ari Fleischer called for passage of the Bush-backed energy bill to expand domestic oil drilling -- including the proposal for the Arctic National Wildlife Refuge (ANWR). That is not going happen in the Democratic-controlled Senate, leaving Republicans to hope that the worried airline company executive is not much of a political prophet.