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Why there's action to halt oil price gusher

February 16, 2000
Web posted at: 5:48 PM EST (2248 GMT)

By Michael Eskenazi

(TIME.com) -- Economic self-interest -- and a good deal of prodding from a White House worried about spoiling Democratic election prospects in the fall -- looks likely to impel OPEC to do something to curtail spiraling oil prices. Fuel costs began to skyrocket last March when the group implemented a 7.5 percent cut in crude oil production that was also respected by nonmember oil-producing nations. The administration has been hands-off until now, saying it'd let the market self-adjust, but prices have just hit a nine-year high -- with emergency crude oil stores at a 25-year low and the summer driving season approaching. And the announcement last week by Kuwaiti and Iranian officials that they'd vote to retain the production cuts at OPEC's March 27 meeting was the final straw in prompting the White House to act.

After a year of relative inactivity on the matter, Energy Secretary Bill Richardson has set an ambitious agenda for the coming weeks in which he'll meet with top officials in such oil-producing states as Mexico, Norway, Kuwait and Saudi Arabia. "This is an increasingly visible problem, and it's important to remember that we're in an election year," says TIME correspondent Andrew Zagorin. While economists don't predict that the high oil prices alone could drive inflation in the U.S., it could certainly have an impact on consumer behavior -- and thus potentially slow down the high-revving American economy. Auto industry analysts are already pointing to oil prices as a partial culprit in the recent drop-off of SUV sales.

And if the U.S. economy coughs, the world splutters. "OPEC is aware that if energy prices keep going up it'll hurt the world economy, and that's not in their interest," says Zagorin, noting that the producers also fear the possibility of an oil price collapse. "So they're going to want to have an orderly, coordinated plan for easing the supply cuts." When Richardson comes to town, for its own sake, OPEC is likely to listen carefully.

Copyright © 2000 Time Inc.