Oil Release Was Greased by Eggshell Diplomacy

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As the price of oil heads south while OPEC takes a hands-off attitude on President Clinton's decision to release 30 million barrels from the strategic reserve, White House officials are quietly high-fiving today. Reason: It looks like a calculated diplomatic gamble paid off, and the oil producers — who're gathering for talks in Venezuela this week — were persuaded not to nix Washington's move by closing a few taps.

U.S. officials had spent six weeks trying to persuade OPEC to increase supplies, explaining the political and social problems Washington faces as winter looms with New England heating oil stocks too low. They stressed that if OPEC couldn't help the U.S. increase those stocks, then Washington would have to act on its own to ease the fuel oil shortage — but that it didn't want a fight with OPEC. "What we were telling them was, 'If we have to do this, don't take it personally,' " a White House insider told TIME. The danger of course, was that a provoked OPEC could negate the move by simply withholding from the market the same amount of oil Washington was releasing.

Last week, administration officials considered a small "test" release of 5 million barrels, which the secretary of energy is authorized to do. While too small to affect the oil price, that would send a signal that Washington was willing to act, in an attempt to break the market psychology that was driving up the price. Trouble is, says a White House insider, "this only works if it's seen as a shot across the bow. We'd have to accompany it with tough talk and threats of more action." And that, they feared, could set off the very counterreaction they didn't want. Once the diplomatic groundwork had been laid, "the 30 million was less aggressive than the 5 million would have been," the insider says.

But oil markets — and OPEC ministers — can be fickle. Today's brilliant move can become tomorrow's bonehead play. So while those White House guys are slapping their palms together, they've also got their fingers crossed.