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Obama 2012 team fears voter backlash on gas prices


President Barack Obama delivers remarks at a UPS shipping facility in Landover, Maryland April 1, 2011. REUTERS/Jim Young
President Barack Obama delivers remarks at a UPS shipping facility in Landover, Maryland April 1, 2011. REUTERS/Jim Young

By Tim Reid and Alister Bull

WASHINGTON (Reuters) - White House officials are increasingly worried that rising gasoline prices, and disruptions to the global oil supply, threaten not only the fragile U.S. economic recovery but the re-election prospects of President Barack Obama.

White House aides are particularly concerned that if gas prices surpass a national average of $4 a gallon -- and if oil passes $125 a barrel -- the economic and political fallout could dominate next year's presidential campaign and drown out Obama's message of economic recovery.

Publicly, the White House insists the U.S. economy can absorb a significant increase in oil prices. But privately some of Obama's aides concede the potential for voter backlash if prices continue to rise is a real political danger as Obama seeks a second term.

One senior White House official admitted to obsessively monitoring news that could affect the price of oil and said oil prices were tracked inside the West Wing daily. Another said oil prices, and the corresponding increase at the pump, has been preoccupying them for months.

With volatility in the Middle East already pushing the price of gas to a national average of $3.66 a gallon (3.8 l), and U.S. oil to nearly $109 a barrel, a senior administration official said $4 at the pump would be "a very significant number".

The official, echoing views of many economists, noted that for every $10 increase in the price of oil, GDP growth is cut by about 0.1 percent. If oil passes $125 a barrel the economic recovery would begin to look imperiled, the official said.

"If you get toward $120, $125 a barrel, it certainly starts to zing the economy, which will lead to a slowdown and potentially a double-dip recession" said Charles Ebinger, director of the Energy Security Initiative at the Brookings Institution in Washington.

"Anything over that would be very dangerous, and you could see a serious economic situation globally," he said.

Ebinger expects gas prices to rise another 40 or 50 cents on average by summer.

"Then it will be a political issue," he said. "There's not a lot the president can do - there's no short-term solution."

Tad Devine, a Democratic strategist and senior adviser to Al Gore and John Kerry's presidential campaigns, said during Gore's unsuccessful 2000 White House bid there was a spike in gas prices during that spring and summer.

POLITICAL PROBLEM

"As political issues go, this is a real one. There is tremendous awareness, and a huge public sensitivity to gas prices, especially amid a terrible downturn," said Devine, whose polling during the 2000 campaign found gas prices a top voter concern.

"If I were in this administration that issue would be of real concern," he said.

Devine added: "Voters see prices going up and the blame winds up at the president's door. I saw that with Gore -- it really stops people focusing on other issues. There are a lot of psychological tipping points. If we get to $4.50, or $5 in the Midwest, it's going to be a huge problem."

Dan Weiss, senior fellow and director of Climate Strategy at the Center for American Progress in Washington, said Obama's political strategists are worried now.

"High oil prices are very bad for incumbent political parties," he said.

One option Obama has to reduce oil prices is to tap the U.S. strategic oil reserves, a step last taken by President George W. Bush after Hurricane Katrina in 2005. The White House says it has not yet decided at what point it would take such action.

"The price of oil is one of a number of factors that is looked at ... in making that determination, but not the sole factor," White House spokesman Jay Carney said in March.

Publicly, the White House is playing down the risks of oil prices to the economic recovery, noting the rise did not hurt job creation last month, while private economists continue to forecast solid growth this year and next.

Austan Goolsbee, Obama's top economist, also argued energy has less effect on U.S. economic growth than in the past, when 1970s oil shocks wrought economic havoc.

"(From) 1979 to today, our energy usage per dollar of GDP is 40-plus percent lower than it was at that time. So up or down, fuel prices just have smaller impact on the aggregate economy," Goolsbee, chairman of the White House Council of Economic Advisers, told Reuters.

Other White House officials framed the problem as more of a political challenge to let Americans know that Obama "gets it" and that he understands gasoline is hurting at these price points.

"For Americans that are already struggling to get by, a hike in gas prices really makes their lives that much harder," Obama said last week. "It hurts."

(Editing by Eric Walsh)

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