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OPEC Struggles for Unity to Face U.S. Tax : Oil: Producers fear Clinton's proposed energy levy will reduce demand--and profits. Their response could increase future gas prices.

April 11, 1993|MARK FINEMAN | TIMES STAFF WRITER

MANAMA, Bahrain — Far from the Clinton Administration's closed-door budget strategy sessions, the world's most powerful oil producers are trying to close ranks and map a response that could send the price of American gasoline soaring several years from now.

The producers are upset over the potential impact of President Clinton's proposed energy tax if it reduces demand for their only marketable commodity--crude oil.

"If this tax is imposed," the Persian Gulf states "will curb oil exports and development of production facilities," Youssef Shirawi, Bahrain's minister of development and industry, declared after he and his counterparts first met on the issue last month in Saudi Arabia.

The Gulf states produce more than half the world's oil and control two-thirds of its 1-trillion-barrel reserves. Such a cutback in their development and exports could almost double oil prices by the end of the century, Shirawi and oil industry experts said.

But there is at least one big problem: In the shifting currents of international oil and the politics of the Gulf states, there is neither the unity nor the shared will to do much more than protest loudly against the tax.

"Argue!" Shirawi said in an interview last week when asked what concrete action the Organization of Petroleum Exporting Countries would take to combat the proposed American energy tax. "What else can we do?"

The 13 OPEC members and other independent oil states are scheduled to meet Tuesday in Oman's capital, Muscat.

There, some members hope to shape a strategy to combat proposed energy taxes both in America and Europe. Kuwait's oil minister describes the session as "probably our final chance" for a unified stand against the levies.

But the oil ministers who will attend the session concede that, on oil prices, the United States and the West now appear to hold all the cards.

This is a dramatic change for Americans, who recall the long gasoline lines, spiraling oil prices and political frustration that accompanied OPEC's drastic price increases in the 1970s.

The energy tax also illustrates one of Washington's favorite buzzwords--world economy--because a proposal that may add 10 cents a gallon to U.S. gas prices could have global repercussions.

The present debate, analysts say, also underscores a transition in Washington, where, after 12 years of Republican administrations that kept oil and gas prices low, partly by favoring the industry's foreign suppliers, there is now a Democratic Administration raising taxes in hopes of repairing the American economy and cleaning up the environment.

Many in this region fear that the proposed energy tax foreshadows policies that may erode the reservoir of goodwill won by the United States with the liberation of Kuwait and defense of the Gulf's oil-rich states two years ago.

"This is very possible," said Ali Ahmed Baghli, the oil minister of Kuwait, a nation grateful for and dependent on the U.S.-led military coalition that drove Iraq from the oil-rich emirate and continues to safeguard its borders and its oil. "Of course, we are allied. We should not confront each other over this issue. But, still, due consideration to every party's interest should be given.

"If you remember, Saudi Arabia and us, we were the cause of putting prices down," he said. "Iran and Libya and those revolutionary countries, they were asking for higher prices. And now, instead of saying, 'Thank you,' treating us this way, it's not fair."

While America's oil-producing Arab allies have not yet reacted harshly to the proposed Clinton energy tax, Baghli noted that they could--in the worst case--sharply increase the cost of oil and reduce their development programs, affecting future oil prices. They also could reduce their contributions to social welfare programs throughout the Gulf, potentially adding to instability in the region.

Why has the Administration's energy-tax proposal caused such a stir? Although it would add just $3.50 a barrel to the cost of U.S. imported oil, most analysts say it would trigger a larger energy levy now under consideration by the European Community. The EC's "carbon tax" would gradually add $10 to a barrel of oil throughout Europe. It, in turn, would pave the way for another energy tax proposed in Japan.

Taken together, the taxes would drive up the price of oil for consumers worldwide, curbing consumption, reducing global demand and ultimately cutting revenues of the oil-producing countries, analysts say.

With less income to spend on domestic projects--such as schools, hospitals and welfare programs that help keep their regimes stable--the governments that control the oil could teeter, perhaps driving up prices still further.

"This energy tax in the U.S. is a very, very serious threat throughout this region," said Jassem Sadoun, a prominent independent Kuwaiti economist now serving as a consultant to his nation's new, elected National Assembly. "It is even dangerous for the social and political stability of these countries."

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