U.S. Losing Ability to Explore for Oil : Baker Says U.S. Won’t Pressure Saudis for Action

Despite issuing contradictory and confusing signals in recent days, the White House remains opposed to taking strong measures to shore up plummeting oil prices, Reagan Administration officials said Friday.

Treasury Secretary James A. Baker III flatly denied suggestions that the Administration plans to pressure Saudi Arabia to stem the flood of oil that has driven oil prices down to about one-third their November levels.

“We’re not in the business of sitting down with OPEC (the Organization of Petroleum Exporting Countries) and talking about the price level of oil,” Baker said in an interview on NBC’s “Today” show. Moreover, he added: “The lower oil prices go, the better it is for the United States’ economy overall.”

Rejects Tax Hike

Baker also denied reports that the Administration is considering increasing the current excise tax on foreign oil. He noted that President Reagan has “ruled out” an oil-import fee as “a drag on the economy” and might apply the “same reasoning” to increasing the excise tax.

Vice President George Bush, who is on a 10-day trip to the Middle East, on Tuesday had set off a flurry of speculation that the Administration had changed its hands-off approach to oil prices. Although he maintained that “we’re not going on a price-setting mission,” Bush told reporters that he would be “selling very hard” to Saudi officials the idea that falling oil prices are damaging the U.S. oil industry.

“I think it is essential that we talk about (oil-price) stability and that we not just have a continued free fall,” Bush said Tuesday. The startling comments, which followed Energy Secretary John S. Herrington’s expression of similar sentiments the day before, had sparked a sharp rebound in oil prices.

White House officials, who spoke on the grounds that they not be identified, suggested privately that Bush’s comments were driven by his own political ambitions, not by any shift in Administration policies. “He’s off and running” for the presidency, one presidential assistant said.

Nonetheless, several sources said the Administration could subtly encourage voluntary moves by the Saudis to stabilize prices. “In the real world,” said one White House official, “there are hard choices, and policies are always nuanced.”

One oil executive, who has strong business ties to the Saudis and therefore asked not to be identified, agreed: “You can have a pleasant conversation (with the Saudis)--without jawboning--in which you indicate this (price) instability is a real problem in the West. . . . Bush knows darn well that we’ve got to get, within some reasonable time, to the $20-a-barrel range.”

Down to $10 a Barrel

Oil prices have fallen from about $31 per 42-gallon barrel in November to about $10 in recent days.

Bush’s statements have given oil lobbyists their first hope in months that the Administration would compromise at least a little of its free-market philosophy on behalf of the battered industry.

“I think there has been a preliminary sort of process start here that indicates the Administration may switch from a totally non-interventionist stance to somewhat interventionist, but I don’t think it will be dramatic,” said one lobbyist, who also requested anonymity.

Outside analysts said the Administration would pay a heavy political cost for any effort to shore up prices, particularly if it is seen as tacit collaboration with OPEC at the expense of consumers.

Brookings Institution senior fellow William Quandt, who was a key National Security Council official during the Jimmy Carter Administration, said the drop in oil prices remains “good for the economy, good for the country and good politically. . . . To tax the entire world (through higher energy costs) to save our oil industry is rather silly.”

‘Good Things Happening’

Ed Kutler of the more conservatively oriented American Enterprise Institute agreed: “Here we are, oil prices are falling and there are good things happening to the economy in general. . . . Has the vice president said the American consumer is not paying enough for gasoline?”

An Administration official said Bush has been under tremendous pressure from Texas oil interests that will be an important part of his political base in a 1988 presidential bid and has been noticeably vocal in expressing their side of the issue in White House meetings.

Replay of Oil Shocks

The industry--joined by congressmen from oil-producing states--has argued that the sharp drop in prices has made it unprofitable to develop new domestic oil sources, without which the United States could become vulnerable to a replay of the oil shocks of the 1970s.

Other sources said the Administration is weighing moves that could gently raise prices for domestic producers and financially ailing oil-exporting countries, such as Mexico. Among those alternatives is resuming purchases of oil for the Strategic Petroleum Reserve, which was set up during the 1970s as a buffer against an interruption of foreign oil supplies.

Even without Administration intervention, many in the industry believe that the chances are good that the Saudis will act within the next few months to shore up prices.

Flooding the Market

For years, other OPEC countries have asked wealthy Saudi Arabia, the world’s largest oil producer, to tighten its belt so that they could obtain a larger share of the global market. The Saudis, irritated with their role as OPEC’s “swing producer,” began flooding the market several months ago in a show of economic force that they hope will impose tighter discipline on fellow OPEC members.

“I’m more than 50% optimistic that between now and June there will be an agreement” among OPEC countries to limit overall production, the U.S. oil executive said.

While Saudi oil minister Sheik Ahmed Zaki Yamani is sympathetic to the problems his country’s actions have created for the U.S. oil-industry, the executive added, “there is a need for some reinforcement in the non-Yamani part of government.”

Of particular concern, he said, is King Fahd, who “is not all that knowledgeable on oil matters,” and with whom Bush will meet.

Karen Tumulty reported from Washington and Eleanor Clift from Santa Barbara.