Sat, 26 Feb 2000

US oil chief has tough task in Saudi

By Michael Georgy

RIYADH (Reuters): U.S. oil diplomacy faces a supreme test in Saudi Arabia this weekend -- pushing the world's top producer to help ease prices without tripping political mines in the cautious kingdom, analysts said on Thursday.

U.S. Energy Secretary Bill Richardson arrives from Kuwait on Friday as part of a tour of producers aimed at persuading them to hike output and bring relief to consumers hit by prices at nine- year highs.

"He is in a tough spot on a tough mission," said a Western oil analyst.

"He has to avoid using this trip as a bully pulpit, and use private words of encouragement."

Prices have become a U.S. presidential election issue by tripling since late 1998 due to production cuts masterminded by OPEC's Saudi Arabia and Venezuela and non-OPEC ally Mexico.

Richardson's visit is crucial because the kingdom, a leading supplier to the United States -- the world's biggest oil market -- has vast influence over OPEC and producers outside the organization.

Western diplomats and Saudi analysts said Richardson must weigh political sensitivities in a country that does not want to be seen as caving in to U.S. pressure. But they noted he will be arriving here with his own political baggage, because criticism of OPEC policy is growing louder back home.

"This is turning into price jaw-boning. I don't think Saudi Arabia and the other Gulf Arab states will announce a production hike deal now because they don't want to tie it to Richardson's visit. They don't want to be seen as giving in to pressure," said a Western diplomat.

"On the other hand, many Gulf Arab states probably support raising production because they are concerned about the impact of high prices on economic growth," he added.

In the United States, some officials are directly pointing the finger at Saudi Arabia, one of Washington's most important Middle East allies.

On Wednesday, Senator Charles Grassley of Iowa said U.S. trade negotiators should block Saudi Arabia from its key goal of joining the World Trade Organization because of its "stranglehold" on oil exports which hurts the U.S. economy.

Federal Reserve Chairman Alan Greenspan warned that a leap in oil prices could have a major impact on the U.S. economy.

Concern is mounting that low gasoline stocks will sharply drive up prices during the summer driving season.

In Riyadh, some see that as an American problem, not a Saudi one. "If Richardson is so concerned then why doesn't the United States lower taxes on gasoline," one businessman asked.

Oil prices climbed to US$27.16 in London on Thursday, partly because bulls were encouraged by suggestions from big producers that they would increase output only gradually in coming months.

Gulf Arab oil ministers agreed at a meeting in Riyadh on Wednesday to work with other producers to stabilize the market and avoid harming the world economy.

But influential Saudi Oil Minister Ali al-Naimi refused to say if those efforts would include raising production, leaving Richardson few clues about what kind of negotiations to expect on his visit.

"(Saudi) people in the know are a bit resentful (of pressure). This is the biggest issue facing Naimi right now. He will approach it in his usual measured, calm, slow-paced way of doing things," added the Western oil analyst.

Saudi Arabia led the Arab oil embargo of the 1970s which left Americans in long lines angry at the pump, triggering a political backlash against Arabs.

"There are some mid-level Saudi officials who are worried that kind of backlash could happen again and want to resolve the issue," said a Western diplomat. "They don't want to see cartoons of Arab sheikhs controlling the pump again."