Fearing fuel tax plan in U.S., nations in OPEC start warning of oil cutback

MANAMA, BAHRAIN — 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 U.S. 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, Mr. 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!" Mr. Shirawi said in an interview last week when asked what concrete action the Organization of Petroleum Exporting Countries would take to combat the proposed U.S. energy tax. "What else can we do?"

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

There, some members hope to shape a strategy to combat proposed energy taxes both in the United States 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.

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

"If you remember, Saudi Arabia and us, we were the cause of putting prices down," said Ali Ahmed Baghli, the oil minister of Kuwait. "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 the United States' oil-producing Arab allies have not yet reacted harshly to the proposed Clinton energy tax, he 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 stir? Although it would add just $3.50 a barrel to the cost of U.S. imported oil, most analysts say that 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, according to analysts.