The White House Monday declined to comment on a report in a new book by journalist Bob Woodward that a Saudi Arabian ambassador had promised the Bush administration that it would lower oil prices to help boost the U.S. economy in time for the November presidential election.
And oil traders shrugged off the report Monday, sending crude prices through the $38 a barrel mark on the New York Mercantile Exchange on fears over increased violence in the Middle East. Prices later settled back.
“The market’s not really reacting to (the report),” said Phil Flynn, an energy analyst at Alaron Trading in Chicago.
In an interview that aired Sunday on CBS, Woodward, a Washington Post editor, said that Saudi Arabia's ambassador to the United States, Prince Bandar bin Sultan, had promised President Bush that the Saudis would cut oil prices before November to ensure the U.S. economy was strong on election day. Woodward is the author of the new book "Plan of Attack" on Bush's preparations for the Iraq war.
It wouldn’t be the first time Saudi Arabia has used oil as a political or diplomatic weapon, most notably during the embargoes of the 1970s that brought gasoline rationing in the U.S. More recently, the Saudis increased production to ease oil prices at the start of the Gulf War in 1990 to support the first Bush administration in its effort to turn back Iraq’s invasion of Kuwait.
On Monday, a Saudi official issued a statement saying the kingdom --the world’s largest oil exporter -- will not interfere with U.S. elections and will remain a reliable supplier of oil.
“We do not use oil for political purposes; it is too important a commodity, and its impact on the global economy (of which we are a part) is tremendous,” said Adel Al-Jubeir, foreign affairs adviser to the Crown Prince of Saudi Arabia.
“Saudi Arabia also does not interfere in elections,” Adel Al-Jubeir said.
The Saudi royal family has close ties to both the first Bush administration and to political allies of the current Bush White House, according to Craig Ungar, author of "House of Bush, House of Saud: The Secret Relationship Between the World's Two Most Powerful Dynasties"
"It is a relationship that goes back generations," said Ungar, who says he's tallied some "$1.4 billion worth of contracts from the House of Saud to companies in which the Bush's and their allies have had big positions."
Saudi Arabia also has greater control over the price of oil than it has at any time in recent memory. In the past, OPEC’s control of global oil markets has been weakened by political infighting within the cartel and cheating by its members on their production quotas. In the late 1990s, for example, overproduction sent oil prices crashing to $12 a barrel -- less than a third of current levels.
But the loss of Iraqi production during the recent war, along with continued political turmoil in Venezuela and strong demand from a growing global economy, have left most OPEC producers with little or no spare production capacity. That means that Saudi Arabia now has a tight grip on global production levels and, in turn, oil prices.
White House spokesman Scott McClellan said Monday that Bandar, in recent talks at the White House, "committed to making sure prices remained in a range of, I believe, $22 to $28 per barrel of oil, and that they don't want to do anything that would harm our consumers or harm our economy."
But Middle East analysts said Monday they doubted the pledge was directly motivated by the desire to help the Bush presidential campaign. For one thing, it’s not at all clear that Saudi Arabia is interested in getting Bush re-elected, according to Jon B. Alterman, a Middle East analyst at the Center for Strategic and International Studies
“I’m not sure they’re all that happy with the Bush administration,” he said.
Alterman cites the Saudi discontent with the escalating Arab-Israeli conflict and the uncertain progress of the war in Iraq, and the feeling among many Saudis that the U.S. has unfairly singled out their country as a target in the war on terrorism.
“My guess is, if anything, the Saudis would be looking for a change in the U.S. administration,” he said.
Higher energy prices – especially at the gasoline pumps – have become a major issue in the presidential campaign. A recent Bush political ad suggests that candidate John Kerry proposed raising gasoline taxes.
But despite the run-up in energy prices and increased demand from a global economic rebound, Saudi Arabia led OPEC in approving production cutbacks at its latest meeting that further tightened global supplies effective April 1. Some analysts said the timing of any Saudi assurances of support was puzzling.
“If the Saudis were so interested in getting Bush re-elected, why were they such hawks at the last open meeting,” said Flynn. “If they had wanted to bring oil prices down, that would have been the time -- back in early April.”
It’s also not clear that assurances from Prince Bandar reflect the intentions of Saudi Crown Prince Abdullah, say analysts.
Still, if rising oil prices threaten to throw cold water on the global economic recovery, Saudi Arabia will have a good reason to pump more oil. Though high crude prices benefit producers, a drop-off in demand could reduce overall oil revenues.
“There’s a general realization in Saudi Arabia at the top that they certainly don’t want to kill the golden goose,” said Walter Cutler, former U.S. Ambassador to Saudi Arabia during the Reagan and first Bush administration.
Reuters contributed to this story.