In Saudi Oil Output Discussions, The Old Clout Will Be Missing

In Saudi Oil Output Discussions, The Old Clout Will Be Missing

Oil diplomacy used to be the province of a small cast of characters with the muscle to make a difference when prices got out of hand.

When the Iran-Iraq war sent oil prices soaring in the early 1980s, for instance, the U.S. helped cajole Saudi Arabia to widen its spigots and calm the markets. Oil companies in the North Sea and Alaska also came on strong with big supplies, causing a glut that lasted into the 1990s.

Reuters

See photos of World-Wide fuel protests.

But now, with fuel costs again causing pain world-wide, a far more diverse group will take the stage in Saudi Arabia Sunday. Dozens of world leaders and executives are meeting to weigh how to reverse oil prices, which have shot up over 40% this year. Their numbers show how tough finding a remedy is likely to be.

Previous oil shocks were largely the result of wars. This time, crude prices have shot up for many reasons, from an oil-hungry China and a feeble dollar to fears that the world’s petroleum supply is running thin. With oil use now more widespread than ever before, the ensuing economic pain is also global, hurting America’s airlines, spurring protests across Europe and prompting pleas for financial relief in the poorer reaches of Asia and Latin America.

Saudi Arabia’s King Abdullah called the gathering, fearful that oil prices would damage the world economy and permanently curb demand in major economies like the U.S. Nearly everyone at the meeting — be it oil-producing nations, Big Oil, China or rich countries such as the U.S. — will arrive hobbled. “No one is going into this meeting with any particular clout or authority,” said David Kirsch, an ex-U.S. State Department energy official who is with PFC Energy in Washington.

The player taking the biggest risk is Saudi Arabia. At a pivotal moment, and with its prestige on the line, the de facto leader of the Organization of Petroleum Exporting Countries and long the world’s mightiest oil power appears suddenly weakened. Since Friday, Saudi Arabia has tried to set the stage for the Jeddah meeting by promising a boost in oil output to hammer down prices. Instead, prices have held firm.

Benchmark oil closed Wednesday on the New York mercantile Exchange up $2.67 at $136.68.

If Saudi Arabia’s bid to drive down prices falls short, analysts say, the credibility of the OPEC cartel — responsible for nearly 40% of the world’s daily oil output — will also take a hit. But some OPEC countries, particularly Iran, have spoken out against the Saudi push to unilaterally raise output, saying that such a decision should be left to the group and that the market doesn’t need additional supplies.

U.S. officials will arrive with a few proposals to clarify and perhaps mend the rampant financial trading in oil futures, which some have blamed for the recent surge in prices. But aides to President Bush say it will take years for longer-term fixes to make a dent in demand in the U.S., which consumes every fourth barrel of oil produced in the world. These include more nuclear power, more offshore drilling, electric cars or wiser urban planning.

If anything, the administration appears largely baffled by what might come of the one-day Jeddah conference. Energy Secretary Samuel Bodman, who will represent the U.S., told Bloomberg TV on Wednesday that he had “no specifics about what our expectations might be” heading into the summit.

From Europe, leaders such as Britain’s prime minister, Gordon Brown, find themselves squeezed between increasingly angry electorates and spending constraints forced on them by their slowing economies. That tension will be on display Thursday and Friday as leaders of the European Union hold a summit in Brussels likely to be dominated by energy matters.

European drivers have long been inured to high fuel-pump prices, more than two thirds of which are made up of taxes. But with fuel now costing above $9 a gallon, truckers and fishermen have been clogging Europe’s ports and roads with protests.

The summits in Brussels and Jeddah are unlikely to provide any sweeping, short-term solutions for Europe, because EU countries disagree sharply about the root causes of the run-up in fuel prices. Almost every country is trying to attack the problem in different ways.

Austria has proposed a European Union-wide tax on what it calls oil speculators. French President Nicolas Sarkozy has proposed cutting the sales tax on fuel across the EU. These measures would require unanimous agreement from all 27 countries. U.K. officials say Mr. Brown, for one, is unlikely to agree. He is pressing for more dialogue with producer nations and more focus on energy efficiency to cut consumption, a UK official said Tuesday.

Italy’s government, faced with a threatened transport strike later this month, on Wednesday approved a slate of measures to lower fuel prices. These include cuts in road and fuel taxes, as well as rise in the corporate tax rate for oil companies that do business in Italy to 33% from 27%. The government says this and a tax on companies such as Eni SpA will be transferred to low-income households.

Mr. Brown is under pressure over fuel prices at home, after truckers caused chaos in central London earlier this month and a fuel-delivery strike led to shortages in some parts of the country.

The European drama over fuel prices heated up Wednesday as farmers drove hundreds of tractors into central Brussels ahead of the EU leaders’ summit meeting. “Diesel prices have doubled, feed prices are up. They [the governments] have to do something so we can survive,” said Marc Delvigne, a 39-year-old cattle farmer from eastern Belgium.

Write to Neil King Jr. at [email protected] and Marc Champion at [email protected]

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