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Oil prices fuel frantic round of finger-pointing

With the stakes high and the issue complex, political and economic players take the blame game to a new level.

June 19, 2008|Paul Richter | Times Staff Writer

WASHINGTON — Runaway oil prices have set off a furious new blame game in which political leaders and key economic players are scrambling to deflect responsibility for the deepening crisis.

With outraged consumers protesting in the streets of many countries, oil producers are blaming speculators, speculators are blaming consumers and politicians are blaming one another. Consequences could entail not just a tarnished image but real damage to economic interests and political fortunes.

"Everybody's got their preferred culprits," said Frank A. Verrastro, a longtime U.S. energy official who is now director of the energy program at the Center for Strategic and International Studies in Washington. "Nobody wants to look in the mirror."

The process of assigning blame underscores the complexity of a crisis with multiple causes and explosive implications.

Nearly 30 years ago, skyrocketing energy prices and a sagging economy may have played a larger role in the defeat of President Carter than the Iranian hostage standoff, experts said.

"Oil prices were a straight-up pocketbook issue, and that, along with inflation, really turned the election," said Paul Light, a professor of public service at New York University who surveyed voter attitudes on energy this year. "The penetration of gas prices as an issue is pretty deep."

In Washington, President Bush on Wednesday blamed Democrats in Congress and called for an end to the nation's offshore drilling ban. Democrats have blamed Bush and Saudi Arabia, among others. The Saudis have blamed global financiers. Environmentalists and oil companies have come in for a helping of blame as well.

Overseas, growing demand for oil in China and India have been fingered, along with U.S. foreign and military policy, as countries worry about the international ramifications of rising prices.

Among the most frequent new targets are speculators. Oil retailers, oil producers, many Democrats and even some Republicans say that people who buy oil as an investment are causing much of the price increase.

"These Wall Street traders have pushed the economy to the brink of disaster," said Dan Gilligan, president of the Petroleum Marketers Assn. of America, a business trade group for gasoline retailers.

Exxon Mobil officials have told lawmakers that more than half the price of a barrel of oil can be attributed to speculation.

But the financial industry is battling back, warning that more price increases could follow if Congress adopts any number of pending proposals, such as increasing the amount of money investors must put up to buy oil contracts or limiting the number of contracts investors can hold.

Such moves could hurt the ability of big industrial users, such as airlines, to hedge their price risk and could send prices higher by causing hoarding or panic buying, critics argue.

"We have to consider the cost of regulatory actions," Mark Stainton, head of the Citadel Investment Group hedge fund, told a regulatory committee this month.

The U.S. government has come in for blame for launching wars in Iraq and Afghanistan. By raising doubts about future oil flow, U.S. military action has added a "security premium" to the price of oil, critics have said. The Bush administration has also been blamed for the weakness of the dollar, which has contributed substantially to price increases.

Libyan leader Moammar Kadafi, whose country is Africa's No. 2 oil producer, complained this month that although U.S. officials complain about the high price of oil, "they are the guilty ones."

Saudi Arabia, the word's largest producer, has long contended that oil speculation is the primary cause of rising prices, and it has resisted pressure from the administration and others to further increase production.

But the Saudis, alarmed at continuing price increases, are convening a world summit this weekend in Riyadh, the Saudi capital, to discuss the problem and have hinted that they might boost output. Those signals seem to suggest that they now acknowledge that supply shortages are at least partly to blame for the climbing prices.

But the price of oil has budged little since the Saudis' intentions were disclosed last week, suggesting that many in the markets need to be convinced that the Saudi moves are more than a public-relations gesture.

Pressure on the kingdom has been intensifying. Some congressional Democrats have been pushing -- so far unsuccessfully -- to hold up arms sales to Riyadh unless it pumps more oil.

The Saudis also are feeling the heat from other Muslim nations confronting strikes and demonstrations over oil prices. Pakistan, under severe economic pressure, has asked the Saudis if it can defer paying for $2 billion worth of oil imports.

With gasoline prices shaping up as a top issue in the fall elections, the U.S. political parties are maneuvering to fix blame on their rivals and discredit each other's remedies.

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