Gore Seeks to Tap Oil Reserve; White House Is Cautious

Democratic presidential nominee Al Gore called Thursday for the release of millions of barrels of oil from the Strategic Petroleum Reserve as a divided administration struggled to respond to rising global anxiety over energy costs.

“At this very moment, a decision is imminent” on whether to use the reserve, Energy Secretary Bill Richardson told lawmakers in an appearance on Capitol Hill. President Clinton, who said earlier this week that he is considering whether to draw down the reserve, is expected to announce his decision as early as today.

The drama over opening up the nation’s petroleum reserve for only the second time in its history comes as a surge in energy prices has cast a sudden shadow over the powerful U.S. economic expansion and flared into a heated issue on the presidential campaign trail and throughout Europe. Economists predicted Thursday that the U.S. and global economies are strong enough to withstand the shock of soaring fuel costs.

While long-term effects may prove to be limited, the pain already being felt by consumers and small businesses has ignited a political furor involving the White House, Treasury Department, Congress and the campaigns of Gore and his GOP rival, Texas Gov. George W. Bush. Like rolling thunder on a clear day, the sudden effect of rising fuel costs has taken many analysts by surprise and altered a political debate in which the U.S. economy had seemed to have few major problems.

The vice president’s proposals seemed to have an instant effect on the oil market, where futures prices tumbled $1.24 a barrel to $34. In New York trading, the price of U.S. light crude scheduled for November delivery fell $1.01 to $34.23 a barrel--a day after the previous contract spiked at one point to a 10-year high of $37.80.

Campaigning in southern Maryland, Gore blasted “profiteering” by energy firms and urged the government to make perhaps 5 million barrels available at first, and more later if needed. In addition, he proposed $400 million in energy assistance to needy families, tax credits to enable heating oil distributors to build up their stocks, tax credits for the purchase of fuel-efficient cars and greater public investment in light rail and other forms of energy-saving mass transit.

“One of the central choices we face in this election is whether we will have a president who’s willing to stand up to the big oil interests and fight for our families,” Gore declared on a visit to a family-owned oil distributor. “That’s the kind of president I intend to be.”

Bush’s campaign, meanwhile, quickly attacked Gore’s proposal as an election-year abuse of the oil reservoir that would reduce its future effectiveness as a bulwark against supply cutoffs.

“Reserves should not be used in an attempt to drive down oil prices right before an election,” Bush told an audience in Cleveland. “They should not be used for short-term political gain at the cost of long-term national security.”

The question of dipping into the strategic reserve on an emergency basis, for the first time since the 1991 Persian Gulf War, also opened up an awkward divide within the Clinton administration, where proponents, including Gore and Richardson, argued that it would calm a panicky marketplace and lead to more stable oil prices.

But opponents of using the stockpile maintain that it was created in 1975 to protect the nation against disruption in the flow of oil to the United States from foreign producers, not as a tool for manipulating energy prices.

Powerful Voices Against Release

In an embarrassing note for the White House, it was disclosed Thursday that both Treasury Secretary Lawrence Summers and U.S. Federal Reserve Chairman Alan Greenspan are among those wary about opening the reserve.

Summers said last week in a memo to Clinton--first reported Thursday in the Wall Street Journal--that it would be “a major and substantial policy mistake” to use the reserve beyond a limited test. Much broader use, as recommended by the Energy Department, would “set a dangerous precedent,” compromising the reserve’s future influence on the psychology of oil traders. Summers pointed out that his view is shared by Greenspan.

Thursday, the Treasury secretary scrambled to sound more open-minded about the vice president’s approach. “We always recognized that this would be, and indeed has been, a rapidly evolving situation,” he said in a statement. “There are a number of approaches for prudent use of the Strategic Petroleum Reserve that are now on the table, including those the vice president has proposed.”

As the political uproar ensued, economists said Thursday that the deregulated U.S. economy is now better able to absorb energy shocks than it was during the oil disruptions of the 1970s. The economy is more competitive than it once was, and companies face intense pressure to limit price increases, making an old-fashioned inflationary spiral unlikely, they said. While certain fuel-intensive businesses may be forced to raise prices, businesses less dependent on energy may not.

As a result, Federal Reserve officials are not likely to face an energy-induced inflation spiral that could spark a new round of interest-rate increases, said Michael Hartnett, international economist at the Merrill Lynch investment firm in New York.

“The risk of higher inflation is low, but the risk of slower growth is high,” he maintained.

In Europe, the problems have been magnified by a surprisingly weak euro currency, which has made fuel costs even more burdensome and created a political crisis. It if weakens further, the euro could become a problem for the United States because it is eroding Europeans’ ability to buy American products, thereby cutting into U.S. corporate profits, economists said. At the same time, the weak euro is making European goods cheaper to buy in the United States, fueling a rise in imports from Europe and increasing the U.S. trade deficit.

The complex and inter-acting issues of oil and the euro have jumped to the top of the agenda of finance ministers from the world’s seven richest countries, who are meeting Saturday in Prague. France is expected to push for immediate talks involving the United States, Western Europe and oil-producing nations.

“I think they [the finance ministers] are going to come out and make as strong a statement as they can for a stronger euro and lower energy prices--without committing themselves to doing anything,” said Pierre Ellis, international economist at Decision Economics in New York.

Such statements, he added, may still have an effect on prices if traders become concerned about the possibility of joint actions by national governments that could hurt their bets in the marketplace.

While policy solutions may prove difficult, the pinch felt by consumers at the gas pump and on many small businesses, along with fears of burdensome heating oil costs this winter, provided irresistible fodder for politicians Thursday.

Bush running mate Dick Cheney blasted the Clinton administration for lacking “any comprehensive plan on energy” and being “asleep at the switch” during the current run-up in energy prices. “Where have they been for the last eight years? What have they done?” he asked during a stop in Cape Girardeau, Mo. “A lot of their own policies have created the shortages that are driving the prices up.”

GOP Lawmakers Also Oppose Move

Cheney’s counterpart on the Democratic ticket, Sen. Joseph I. Lieberman of Connecticut, said that it is Bush who has no plan: “Sadly, the Bush-Cheney ticket has no plan for stopping spiraling gas and home heating oil costs. They have no plan for reducing our dependency on oil and, in fact, would increase our . . . addiction. They have no plan for improving energy efficiency.”

Some Republican lawmakers also jumped into the fray, warning Clinton not to use the reserve for political reasons: “The president should not tap the Strategic Petroleum Reserve just to give a campaign boost to his vice president and his wife,” said House Majority Whip Tom DeLay of Texas.

The Clinton administration was still hoping for some added oil production, however limited it might be. “We will continue to urge [oil exporters] to consider increasing production,” Richardson told members of the House Government Reform Committee. The heads of state of the Organization of Petroleum Exporting Countries will meet next week in Caracas, Venezuela.

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Contributing to this report from the political campaign trail were Times staff writers Edwin Chen, Maria L. La Ganga, Matea Gold and Megan Garvey.