Bush Says Rising Price of Oil
Could Hurt Pace of Recovery
In Interview, President Touts Energy Plan,
Disagrees With Options-as-Expense Push
By GERALD F. SEIB
Staff Reporter of THE WALL STREET JOURNAL
WASHINGTON -- President Bush said the spiking oil prices could damage the nation's fragile economic recovery. But he also declared he is prepared to consider a range of options to ease the pain if Iraq's 30-day cutoff of oil exports exacerbates the problem.
"Bad energy policy, or the failure to have energy policy, or the fact that we're dependent upon unstable countries is a reason why I do not believe that we're out of the economic woods yet," the president said in an interview with The Wall Street Journal. The potential for an oil shock is a reason "why we've got to be very cautious about making bold predictions about the economy. We're an energy-dependent nation."
The president said the oil scare underscored his arguments for Congress to pass an energy bill he has proposed, especially its provision calling for drilling in the Arctic National Wildlife Refuge. But in a relaxed conversation in the Oval Office, Mr. Bush also made clear that he is willing to consider more-immediate steps to offset an oil problem if necessary. He specifically refused to rule out tapping the nation's strategic petroleum reserve or a reduction in gasoline taxes if necessary. "We'll look at all options" if the Iraqi threat creates a problem, he said.
Such steps may never be necessary, of course. Though Iran and Libya have indicated they are sympathetic to Iraq's call for an oil cutoff, Mr. Bush noted that some oil-producing countries have publicly declared that they won't take part in any embargoes. "There is excess supply, and we'll see how it plays out," he said.
Just before he spoke, Mr. Bush got one piece of better Middle East news. He had just learned that Israeli forces, after resisting his calls for four days, had begun to pull back from two West Bank towns occupied in the West Bank. Mr. Bush said he was confident the withdrawals would continue. "That's a beginning," he said. He also said that Secretary of State Colin Powell has "full latitude" to meet with Palestinian leader Yasser Arafat when the secretary visits the region at the end of this week.
On other matters, Mr. Bush disagreed with the idea that companies should have to count employee stock options as an expense against earnings -- a proposal opposed by business groups but supported by Federal Reserve Chairman Alan Greenspan. Instead, Mr. Bush suggested adding some stock options to the number of shares outstanding when calculating a company's earnings per share. "I think once options are 'in the money,' they ought to be calculated in the dilution ... that they ought to be dilutive in their earnings per share calculations," he said. Options are in the money when the stock's market price is above the options' exercise price.
Bush economic adviser Lawrence Lindsey has advocated a similar approach, as an alternative to actually subtracting the options' value from earnings. Such a plan would be much less objectionable to business, but wouldn't satisfy Mr. Greenspan's concern about the effect on a company's overall earnings calculation.
Mr. Bush also said that, while he thinks reforms are needed in corporate governance, he doesn't think the problems of Enron Corp. and Arthur Andersen have undermined confidence in markets. He said chief executives "need to be held accountable for full exposure and full detail of assets and liabilities."
Middle East problems have steadily consumed more of Mr. Bush's time and energy in recent weeks, and Monday it was clear that Iraq's oil threat has only deepened his considerable enmity toward Iraqi leader Saddam Hussein. Asked whether Iraq's move constituted a hostile act, Mr. Bush said: "Well, I wouldn't call it a friendly gesture ... . Iraq is a problem, and again, another reason why it's a problem we witnessed today."
The president spoke on a day when the limits on his ability to control Middle East events were apparent, and there were hints they could be a factor in a softening of the his enormous popularity. Though a withdrawal began, the Israeli offensive on the West Bank continued in other areas. And Mr. Powell found that his pleas to moderate Arabs to pressure Mr. Arafat to end the suicide bombings were met with pointed suggestions that the U.S. first get Israel to withdraw from recently occupied Palestinian towns.
And though Mr. Hussein's oil move seemed unlikely to be followed by other major exporters, the noises about use of the oil weapon roiled markets and pushed up prices.
The Middle East crisis has come at a crucial juncture in Mr. Bush's presidency. The Sept. 11 attacks fundamentally changed his agenda, transforming a presidency focused on domestic issues into one fixated on national security. In making the turn, Mr. Bush was widely supported by the American people, in part because of a natural tendency to rally around a leader at a time of crisis, but in large measure because of his decisiveness in the attacks' aftermath.
The wall of support is bound to wear down over time, and a new Wall Street Journal/NBC News poll suggests the mess in Israel may be starting that process. Mr. Bush still gets an exceptionally high rating: 74% of those polled approved of the job he is doing as president. But that's down from 82% in January.
More telling may be a dip in public perceptions of Mr. Bush's handling of foreign affairs. In the new survey, 68% said they approved of his handling of foreign policy, a 13-point drop since the start of the year. Americans appear to want Mr. Bush, who has resisted thrusting his administration too deeply into the Israeli-Palestinian conflict, to be involved in seeking a settlement. Though they tend to say Mr. Bush has done enough so far, those surveyed also said -- by almost a two-to-one ratio -- that the U.S. now should be involved in trying to achieve Middle East peace. Mr. Bush's overall strong support still figures to be an asset for Republicans in next fall's congressional elections, lthough the party worries that a faltering economic recovery would undercut that asset's strength.
Costlier Oil
Largely because of Middle East jitters, oil prices have risen to almost $27 a barrel, from $16 last fall. Most economists think the rise in prices can hurt the economic recovery, but won't derail it. As a general rule, a $10 increase in oil prices knocks 0.2% to 0.4% off the economy's growth rate, meaning that if oil remains in the $25-to-$30-a-barrel range, GDP growth would be a quarter to half a percentage point lower than had oil remained at, say, $19 a barrel. That isn't enough to push the country back into recession.
Falling energy costs had been a big contributor to recovering disposable income -- a source of improvement that is being curtailed now. Oil prices also cut into business profit margins, and could push up inflation, affecting the Fed's willingness to keep down interest rates.
Mr. Bush contends that a domestic energy policy with more incentives for production would be a big step toward eliminating potential oil worries. Though some Republicans in the Senate are growing fearful they can't muster the votes to pass it, Mr. Bush's comments show he remains a staunch advocate of allowing for oil drilling in Alaska's Arctic refuge. The administration has estimated that, at peak production, ANWR could yield between one million and 1.3 million barrels of oil a day, accounting for some 20% of U.S. domestic production.
Pullback Demand
Of course, a moderation of Middle East violence would ease oil anxieties, as well as keep attention focused on the president's broader campaign against terrorism. While Mr. Bush is sympathetic with Israeli Prime Minister Ariel Sharon's desire to quell Palestinian terrorism, he made clear in the interview that he thinks Israel needs to pull back from Palestinian territories now or imperil the chances for any peace process.
It's clear Mr. Bush has shed much of his previous reluctance to get too deeply involved in the Israeli-Palestinian fight. And in a flourish to close out the interview, he portrayed himself as an optimist despite the setbacks. "I believe that there are a lot of people in the Middle East -- average, hard-working mothers and fathers -- who want to see a better day. And we've got to lead to that better day."
In political terms, the good news for Mr. Bush is that he clearly has a strong residue of appreciation for the way he conducted himself in the weeks after Sept. 11. When poll respondents were asked to cite the leadership traits in Mr. Bush they most admired, the one most often cited -- by 21% -- was his willingness to take action even if it is politically unpopular. Almost as many agreed that the president "is moral and has good values" or that he "is sincere [and] genuinely believes what he says."
Those are just the kinds of attitudes that figure to serve him well as he heads into a period in the Middle East where his ability to control events appears to be low, and possibly diminishing.
Write to Gerald F. Seib at jerry.seib@wsj.com
Updated April 9, 2002 3:14 a.m. EDT |
