RIYADH, Saudi Arabia President Bush urged OPEC nations on Tuesday to put more oil on the world market and warned that soaring prices could cause an economic slowdown in the United States.
"High energy prices can damage consuming economies," the president told a small group of reporters traveling with him in the Mideast.
"It's affected our families. Paying more for gasoline hurts some of the American families, and I'll make that clear to him," said Bush, heading into more talks with Saudi King Abdullah. Shortly after Bush spoke, the Saudi oil minister said the kingdom, responsible for almost one-third of the cartel's total output, would raise oil production when the market justified it.
In a stern warning to Iran days after a Jan. 6 confrontation with U.S. warships in the Persian Gulf, Bush put Tehran on notice that it needs to be careful. The president said it would not matter to him whether an attack against an American vessel resulted from an order by the government in Iran or a rash decision by an Iranian boat captain.
"It's not going to matter to me one way or another," Bush said. If the Iranians hit a U.S. ship, "there are going to be serious consequences," he said.
U.S. officials claim Iranian speedboats swarmed three Navy warships in the Strait of Hormuz, the narrow waterway that is the only entry and exit to the Persian Gulf. They said U.S. Navy commanders were considering firing warning shots, before the retreat of the five Iranian speedboats, which the Pentagon said were operated by the elite Revolutionary Guards.
Iran has denied that its boats threatened the U.S. vessels, saying the incident was a normal occurrence, and accused Washington of fabricating video and audio it released. Iran's government has released its own video, which appeared to be shot from a small boat bobbing at least 100 yards from the American warships.
The president spoke to reporters before meeting late Tuesday with Abdullah, whose country holds the world's largest supply of oil. Bush said U.S. consumers are feeling the pain of rising oil prices, which topped $100 a barrel this month.
"When consumers have less purchasing power, it could cause the economy to slow down," Bush said. "I hope OPEC nations put more supply on the market," he added. "It would be helpful."
The Organization of Petroleum Exporting Countries next meets Feb. 1 in Vienna, Austria, to consider increasing output. OPEC oil accounts for about 40 percent of the world's needs, and OPEC ministers often follow the lead of the Saudis when discussing whether to increase production to take the pressure off rising prices. The Saudis' views carry great weight because of its large share of output.
At the same time, he acknowledged that the higher prices reflect supply and demand, and that there is little excess capacity in the marketplace. Bush said a growing demand for oil, especially from fast-growing India and China, is straining supply and lifting prices.
"Oil is commodity," he said. "It isn't something that you just turn on a tap. It requires investment, exploration, a lot of capital."
"A lot of these oil producing countries are full out" in terms of what they can produce, he said.
Asked whether he thought the U.S. economy was sliding toward recession, as some economists predict, Bush said, "These are times of economic uncertainty, but I have confidence in the future." He said the underpinnings of the economy were strong, and "I'm optimistic."
In Washington, two government reports released Tuesday added to fears of a recession: Wholesale inflation shot up in 2007 by the largest amount in 26 years and retail sales fell in December.
Bush's administration and Congress are looking at ways to give the economy a boost. Options include tax cuts, tax rebates and other incentives. Asked what steps he believed were necessary, Bush said: "We're going to watch very carefully."
The Saudi oil minister, Ali Naimi, said the U.S. economy is significant to the oil market and demand. "I'm sure no one will look with pleasure on a recession in the U.S. On the contrary, all our effort is to maintain prosperity and growth in all countries, particularly the number one consuming nation in the world," he said.
But the minister said oil is not the only reason for the slowing U.S. economy. "The concern for the U.S. economy is valid, but what affects the U.S. economy is more than the supply of oil," he said.
Secretary of State Condoleezza Rice, traveling with Bush in the Mideast, slipped away from the Saudi capital at 6:40 a.m. Tuesday for a quick trip to Iraq. Bush said he had been encouraged by signs of progress in Baghdad and decided that she could "help push the momentum by her very presence."
She congratulated the prime minister, Nouri al-Maliki, on the passage of legislation reinstating former Saddam Hussein loyalists to government jobs and pushing for progress on other benchmark laws. At a Baghdad news conference, she said political progress has moved along "quite remarkably," citing a new law that allows thousands of former members of Saddam Hussein's Baath party to reclaim government jobs or pensions.
Rice added that the Iraqi parliament's approval of that U.S.-sought law Saturday was a first step and showed that last year's increase of U.S. troops in the country was paying dividends.
Bush said he would not go to Iraq while traveling in the region. There had been widespread speculation he would make a visit.
One of the primary objectives of trip is to build support for the Israeli-Palestinian peace process. He said that Abdullah asked him why he was optimistic about securing an agreement before his White House term ends in January 2009.
"Part of my mission was to make clear why talks failed in the past. There wasn't participation by the neighbors," Bush said, referring to Arab countries that have kept an arm's length from the negotiations.
Bush said he was convinced that the Arab leaders want to see the creation of a Palestinian state in a peace agreement with Israel. "They definitely want it to happen," he said, "and they questioned the seriousness of the United States to remain involved in what has been a long and frustrating process."
"They want to see a deal done," he said. "The issue frustrates them."
Bush spoke to the group of reporters while sitting in a chair under a gold and crystal chandelier in an ornate room of the kingdom's guest palace. Bush said he has faced persistent questions during his trip about a new U.S. intelligence estimate that said Iran had abandoned its nuclear weapons program in 2003. That conclusion contradicted Bush's claim that Iran was pursuing nuclear weapons and raised questions in the Mideast about U.S. intentions toward Iran.
The president said he made clear that the new finding was a judgment by independent intelligence agencies and that "all options are on the table for dealing with Iran." At the same time, he said he has told leaders he wants a diplomatic solution.
Tensions flared anew with the confrontation last week in the Gulf. Bush said it would be up to the captains of the American ships to determine if their vessels are in jeopardy from Iranian boats.
"These are judgment calls and there are clear rules of engagement," he said. Still, he told the Iranians: "They better be careful. If they hit one of our ships there are going to be serious consequences."
Earlier, Bush spoke before meeting with Saudi business owners, many of them young and educated in the United States. He then visited al-Murabba Palace and The National Museum, stopping in a gallery describing the Prophet Muhammad's life.
Later, Bush rode out in the desert to the king's weekend retreat and farm, where 260 Arabian horses are kept in climate-controlled, air-conditioned stables. On a chilly afternoon, the two men sat in a glass-enclosed viewing room and watched as a trainer paraded sleek horses around a showing ring outside. The excursion repays the two visits that the king, while crown prince, made to Bush's ranch in Crawford, Texas, in 2002 and 2005.