Oil to be at forefront of G7 meeting

/ Source: The Associated Press

U.S. Treasury Secretary John Snow said Tuesday the spike in global crude oil prices will be one of the key issues to be tackled as the Group of Seven industrialized nations meet in Washington, D.C., this week.

"Clearly, energy has to be right at the forefront" of our concerns at the G7, Snow told a round-table of local business leaders in Reno, Nevada.

Snow called the jump in world oil prices — which on Tuesday reached a high of $50.47 a barrel on the New York Mercantile Exchange — a "short-term phenomenon" brought on by geopolitical uncertainties.

"The uncertainties are feeding speculation and the speculation is driving prices higher than something that is supportable," the treasury secretary said.

"I think prices will come back," Snow said, adding that "the futures market is confirming that. This is a short-term phenomenon."

Snow cited current estimates that oil prices are 10 percent to 15 percent higher than what the market can support, which, he said, in large part is a result of the "geopolitics of oil."

Snow said there is "a recognition that this $50 (oil) price is the result of an anomalous set of circumstances" resulting from market uncertainties.

In addition to the G7 gathering to be attended by finance ministers and central bankers, the International Monetary Fund will also hold its annual meeting in Washington this weekend.

Snow said he would raise concerns over Iraq's growing debt with G7 and IMF leaders this week. He said he will talk with his counterparts from Germany, France and Russia on the need to afford Iraq broad-scale debt forgiveness.

"Iraq simply cannot sustain the level of debt they've got now," he said.

On other topics, Snow predicted the federal deficit will be cut in half "over the next few years," and said failure to make permanent the Bush administration's tax cuts would effectively raise tax rates on U.S. citizens and jeopardize the U.S. economic recovery.

He said rising health-care costs, combined with high energy costs, are among the biggest barriers to future economic growth in the United States. According to him, eliminating tax cuts for the wealthiest would be especially harmful to small businesses.

On the U.S. economy, Snow predicted improvement in the gross domestic product in the third and fourth quarters.

"I think we'll see GDP growth go back up to the levels we saw since the tax cuts were passed. Those tax cuts were really miraculous... People had been talking about double-digit recession," Snow said.

"The third quarter last year, the economy really started getting momentum and it's had good momentum ever since. It's why we want to make those (tax) cuts permanent," he said.