Paulson to push for oil investment in Mideast

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WASHINGTON (Reuters) - U.S. Treasury Secretary Henry Paulson will emphasize during a trip to the Middle East the need to allow private sector investment in the oil industry, a senior Treasury official said on Wednesday.

By David Lawder

WASHINGTON (Reuters) - U.S. Treasury Secretary Henry Paulson will emphasize during a trip to the Middle East the need to allow private sector investment in the oil industry, a senior Treasury official said on Wednesday.

David McCormick, the Treasury's undersecretary for international affairs, told a news briefing that Paulson would emphasize on a trip to Saudi Arabia, Qatar and the United Arab Emirates this week the need to allow private sector investment to ease oil supply constraints.

"I think there'd be a broad-based recognition that there's not enough supply in the global markets," McCormick said. "We want to encourage additional investment in that global capacity."

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Government policies that ensure that capital can flow to markets that can develop additional oil production capacity are "a worthwhile pursuit," McCormick said.

He added that Paulson would emphasize the need for energy around the world to be driven by market forces, and that fuel subsidies and price controls should be avoided.

McCormick said Paulson would tread lightly on the sensitive issue of foreign exchange policy, including the dollar pegs that govern many Gulf state currencies.

Some Gulf oil producers have studied Kuwait's lead in shifting currency pegs away from the dollar to a basket of currencies to help fight double-digit inflation.

Asked how the Treasury would view such a move, McCormick said, "Currency decisions are sovereign decisions. We've consistently said that."

"It appears that the peg in the Gulf states has served those countries well, but certainly it's ultimately a sovereign decision," he added.

The United Arab Emirates last month reaffirmed its commitment to the dollar peg, while pledging that it was still aiming for regional monetary union by 2010. The peg has forced the states to match Federal Reserve interest rate cuts even as their economies surge on rising oil prices, spiking inflation.

Paulson's visit, which will put him in Saudi Arabia on May 30 and 31, Qatar on June 1 and Abu Dhabi and Dubai on June 2, is his first to the region. It also is the first by a treasury secretary since the controversial collapse of a deal by Dubai Ports World to buy several U.S. port operations over national security concerns in the U.S. Congress.

He will emphasize changes to the U.S. security review process since then and will "make the case that foreign investment is of enormous importance to the United States," McCormick said.

(Reporting by David Lawder; Editing by Neil Stempleman)