Costly Oil a Peril, Bush Tells Saudis

President Bush told Crown Prince Abdullah of Saudi Arabia on Monday that soaring oil prices would damage the world economy, but he neither sought nor received a new commitment that Riyadh would immediately increase oil production, representatives for both governments said.

Instead, Bush favorably received a Saudi plan to increase investments in energy development, White House national security advisor Stephen Hadley said. He noted that the plan, which the Saudis had announced in November, “can’t help but have a positive effect downward” on oil and gasoline prices.

Asked why Bush did not pressure the Saudis to help curb oil prices, Secretary of State Condoleezza Rice said the prices reflected a current problem in “supply and demand,” with demand outpacing supply, caused by the booming economies of such nations as China and India.

“And those issues have to be addressed not by jawboning but by having a strategic plan for dealing with the problem,” Rice said.

Crude oil prices on the New York Mercantile Exchange are within sight of the $57.27 closing high set April 1, and many analysts see little hope that Saudi Arabia will take action to bring prices down. After rising four straight days last week, the price of light, sweet crude oil -- one of the main oil price benchmarks -- fell 82 cents Monday to $54.57 a barrel. That oil is prized because of its low sulfur content, which makes it easier to refine.

In their meeting, held exactly three years after Abdullah’s first visit to Bush’s ranch, the president and the crown prince discussed several issues, including the Middle East peace process and Saudi Arabia’s efforts at democratic reform, officials said.

“The atmosphere was very positive,” Hadley said.

When Abdullah arrived at the ranch, Bush and the Saudi leader embraced lightly and exchanged kisses on the cheek. Bush then grasped Abdullah’s right hand and slowly escorted the 81-year-old prince to the house.

Under pressure from the U.S. and other countries to increase oil and gas output, Saudi Arabia said last week that it would double its investments in energy development to $50 billion by the end of the decade.

Specifically, Saudi oil minister Ali Ibrahim Naimi said the desert kingdom would increase its oil-pumping capacity to 12.5 million barrels a day by 2009. The Saudis have been pumping 9.5 million barrels a day, the production cap set by the Organization of the Petroleum Exporting Countries, but Naimi said they would immediately increase that to 11 million barrels -- the country’s current production capacity.

That expansion would not only make more oil available but also “stabilize the market at a price level which both the United States and Saudi Arabia agree needs to be one that provides adequate return for investment but is also something which isn’t so high that it damages markets and damages the world economy,” Hadley said. Bush’s meeting with Abdullah was perhaps his highest-profile move to show that he is working to curb oil and gasoline prices at a time when his job approval rating has been plummeting.

But by not publicly pressuring Abdullah, Bush may expose himself to criticism that he’s not doing enough to tackle high gasoline prices.

Before the meeting, the Democratic National Committee issued a statement noting that during the 2000 presidential campaign, Bush lambasted President Clinton for not “jawboning” the leaders of OPEC nations.

“Bush has done nothing to alleviate skyrocketing gas prices today,” the statement continued. “We certainly hope that President Bush will listen to the American people and finally stand up to foreign leaders for American interests.”

In two post-meeting briefings -- by Hadley and Rice and by Adel Jubeir, Abdullah’s foreign policy advisor -- it became apparent that the two governments held different views about the cause of current high prices.

Jubeir contradicted Rice -- and previous statements by the president -- by stating that the Saudis believed that the price of crude oil “does not reflect the fundamentals of supply and demand.” Rather, he blamed the high prices in part on insufficient refining capacity in the U.S.

“It will not make a difference if Saudi Arabia ships an extra million or 2 million barrels of crude oil to the United States if you cannot refine it,” he said. “It will not turn into gasoline and it will not turn into lower prices.”

Hadley acknowledged that the Saudis had raised the question of refinery capacity, and said the two sides held “a good exchange of views” on the matter.

If the Saudis start producing at their current capacity, as Naimi promised last week, “that could make the market nervous” by eliminating important reserve capacity that in the past has kept a little pressure on spiraling prices, said Larry Goldstein, president of the New York-based Petroleum Industry Research Foundation Inc., an independent nonprofit organization that analyzes energy issues.

On other matters, the U.S. and Saudi Arabia expect to soon put the finishing touches on a bilateral agreement that could enable the kingdom to join the World Trade Organization by the end of this year.

Unemployment in Saudi Arabia is high, and its leaders want to diversify the economy, analysts said. WTO membership is considered an important step in that process.

“This is critical for the development and diversification of the Saudi economy,” said Jeffrey Schott, a senior fellow at the Institute for International Economics in Washington. “That has implications for employment, and that in turn has implications for the political stability of the regime.”

The Saudis have been watching as the United States has entered into negotiations with other Arab countries that could lead to lucrative free trade agreements, Schott said.

Last year, Saudi exports to the United States totaled $20.9 billion, of which $20.3 billion was petroleum. The kingdom bought $5.2 billion in U.S. goods, down from $10.5 billion in 1998.

Times staff writers Warren Vieth in Washington and John O’Dell in Los Angeles contributed to this report.