Who's Right About Oil?

By ERIC POOLEY

To hear Al Gore tell it, George W. Bush and Dick Cheney are the oil-industry candidates, the men with Texas crude flowing through their veins. But in reality it is the Democrats who have the clout to meddle in the petroleum market. Last Thursday, Gore proposed that the U.S. control rising oil prices by tapping a small portion of the national Strategic Petroleum Reserve. A day later the Clinton Administration announced that it was releasing 30 million of the 570 million bbl. now stockpiled in salt caves along the Gulf Coast of Texas and Louisiana. The idea, said Energy Secretary Bill Richardson, is to correct extreme shortages in the heating-oil supply. "This is not political," he said. "The President wants to help the American people...have enough heat in their homes."

Six weeks before a presidential election, nothing that happens in official Washington is not political. And though many news reports have called this the first peacetime release of oil from the strategic reserve, it is not. The Clinton Administration has played election-year politics with the SPR before. In the spring of 1996, as Clinton was running for re-election against Bob Dole, gasoline prices shot up 20% in some states. Dole proposed repealing Clinton's 1993 gas-tax increase, and three days later the President responded. He seized on an obscure part of a bipartisan deficit-reduction bill and spun it as a relief measure for motorists. On a campaign trip to Florida, a state he had lost in 1992, the President announced that he had ordered the sale of 12 million bbl. from the SPR because the "rise in the price of gasoline...affects the take-home pay of working people who have to commute."

Sound familiar? Maybe SPR stands for Strategic Political Reserve. Clinton used it to inoculate himself against Dole. And Gore has used it to inoculate himself against Bush, who for months has been hammering Clinton-Gore for having no coherent energy policy. But unlike the one in 1996, this year's release was not something that fell into the Democrats' lap. It was debated for months--and initially Gore and Clinton were opposed.

Richardson began talking about the idea last January, and Gore let it be known during the primaries that he thought it was an ineffective way to lower prices. But as oil prices continued to climb, the Vice President's policy team became deeply involved in a months-long White House debate about tapping the reserve. Treasury Secretary Lawrence Summers opposed the release in a much publicized Sept. 13 memo, but a week before he wrote it, sources tell TIME, Clinton was already telling Saudi Crown Prince Abdullah that he was strongly considering tapping the reserve. They met in a suite at the Waldorf-Astoria in New York City during the U.N. Millennium Summit. Clinton's "objective was to get quiet support from the Saudis," says a source close to the talks. A few days later the President dispatched Richardson to Los Angeles to brief Prince Saud al-Faisal, the Saudi Foreign Minister. It couldn't have been a surprise to Clinton when Gore called him from the campaign trail last Tuesday and said he was going to come out in favor of an SPR release. Clinton was happy to let Gore propose the idea first so the Vice President could get a tactical boost just as Bush seemed to be regaining his balance.

And so the question is not whether the oil release is a pander but whether the pander is a good one or bad one--an effective policy that also wins votes or just a hollow gesture. The answer depends on whether this is a true oil emergency--and whether 30 million bbl. will help solve it.

Anyone who has paid for a tank of home heating oil recently knows the problem is real. Heating oil now costs 67% more than it did a year ago; depleted inventories and high worldwide demand, along with forecasts of a colder than average winter, are expected to boost prices even higher. Last week 111 members of Congress--Democrats and Republicans, mostly from the Northeast and the Midwest--sent a letter to Clinton asking him to deploy the SPR. To dramatize the problem Friday, Gore held an event in Pittsburgh that featured a number of people battered by rising oil prices, including an elderly woman named Annie Young who said she didn't know how she was going to pay for heating oil since she already couldn't pay for her prescription drugs. "These prices are skyrocketing," said Gore. "It's hurting those on a fixed income, it's hurting young families... I want to reject the agenda of Big Oil and stand up to the apologists for Big Oil."

As soon as Gore came out for the oil release, Bush pounced on him for "playing politics." A Bush adviser calls Gore's position "manna from heaven" because it reinforces the claim that the Vice President will say and do anything to get elected. "The strategic reserve should not be used as an attempt to drive down oil prices right before an election," Bush said. "It should not be used for short-term political gain at the cost of long-term national security."

Bush's national-security point seems strained, since the reserve oil isn't being sold but "swapped"--the deal requires buyers to replenish the reserve. But that's not the only reason Gore and his advisers were delighted with Bush's response. Their fear had been that as temperatures dropped and the election approached, Bush would draw blood with his criticism of a Clinton-Gore "do-nothing" energy policy. Most people who heat their homes with oil live in New England, which is solidly for Gore, but a great many also live in battleground states like Pennsylvania and Ohio. Gore had only to think back to Jimmy Carter's 1980 re-election campaign for a time when high oil prices helped defeat a Democrat. By getting ahead on the issue, Gore could defuse the threat while burnishing his image as a fighter for the little guy. And when his opponent attacked the move, Gore could again paint Bush and Cheney as a ticket "of Big Oil, by Big Oil and for Big Oil." When Bush and Cheney stressed their plan to increase domestic oil production by opening the Arctic National Wildlife Refuge in Alaska to drilling, the Gore team was even happier. They quickly reminded reporters that Cheney's former firm, Halliburton, would reap windfall profits from such a move.

Even so, the issue is by no means risk-free for Gore. It reinforces his image as a malleable pol, so it's worth examining why he claims to have changed his mind. In February, when Bill Bradley, his primary opponent, proposed tapping the reserve to aid homeowners, Gore said the move wouldn't help boost supply, because if oil-producing countries retaliated by cutting production, "they'd wipe out any impact from releasing oil from that reserve." Gore now argues that circumstances have changed. The OPEC nations, he said last week, "pledged to increase oil production, and they have not." But the Clinton Administration says OPEC is now producing 3.5 million bbl. a day more than it did last March.

Gore's claim that Big Oil is guilty of "profiteering" may have more basis in reality. The heating-oil-supply problem stems in part from the fact that domestic refineries spent the summer making gasoline, because doing so ensured high profits. They didn't refine much heating oil because they didn't want to be stuck with large, high-cost inventories if the price dropped before winter. That didn't happen. Crude oil now costs about $10 per bbl. more than it did a year ago, and the domestic heating-oil supply remains dangerously low. So Gore found himself embracing a solution he didn't trust seven months ago.

Voters may forgive these second thoughts. But they might have a harder time reconciling his election-eve push for cheaper oil with a political career in which he has argued that high oil prices are a good thing because they help reduce consumption. In 1993 he pushed for a broad-based tax on energy consumption--the so-called BTU tax, which was killed by the Senate Finance Committee. Where is Mr. BTU Tax today?

There's also some hypocrisy in Bush's rhetoric. He spent last week complaining that for seven years, Clinton and Gore have had "no comprehensive energy policy," and yet it is Bush who has no long-term plan. The Bush website offers detailed positions on 23 different issues, from abstinence to taxes, but not a word on oil or gas. (Bush has scheduled a speech on the subject for this week.)

The timing of Richardson's announcement was geared not only to domestic politics but also to global energy politics. This week the OPEC heads of state are scheduled to meet in Caracas, Venezuela--their first such meeting in 25 years. Analysts don't expect much serious policy discussion at the meeting, but the Administration wanted its plan in play beforehand--with quiet support lined up from the Saudis as a way to help mute criticism from such OPEC members as Iran. The move is bound to displease those members who want and need high oil prices--countries such as Indonesia that could, as Gore warned last winter, reduce output in response. So the U.S. is treading carefully, describing its plan as a "temporary, precautionary, internal transfer of oil." Clinton and Gore hope that diplomacy has now succeeded in preventing an OPEC backlash, while also sending the signal that America is prepared to take concrete action to lower the price of oil. On Saturday the Venezuelan oil minister, Ali Rodriguez, the current OPEC president, spoke in support of the release.

But will it work? In essence, the play is more about psychology than about supply and demand. By itself, a million barrels a day for 30 days is not enough to change the market equation drastically. Coupled with the threat of additional releases, however, it might be. But easing the burden requires more than a change in the spot price of crude. Domestic refineries are running at about 95% of capacity, and Richardson's estimate that the release could translate into an additional 3 million to 5 million bbls. of heating oil this winter seems optimistic. Since it will take 40 days or more for the oil to work its way from salt cave to refinery to peoples' homes, no one will know how effective the release was until after the election. In that sense, at least, it's a perfect pander for Gore.

--Reported by Jay Branegan, James Carney and Adam Zagorin/Washington and Tamala M. Edwards with Gore

With reporting by Jay Branegan, James Carney and Adam Zagorin/Washington and Tamala M. Edwards with Gore