The Reagan administration yesterday told Congress that in the event of a new world oil crisis it is determined to let the free market establish the price of oil, and who gets it, even if a barrel of crude oil soars from its current $28.50 to well over $100.
"It certainly should not come as any shock to anyone that this administration's policy is for the marketplace to distribute and allocate energy, both in normal times and in emergency times," Assistant Energy Secretary William A. Vaughan said.
Vaughan, testifying at a House Government Operations subcommittee hearing into how the United States would respond to a cutoff of Persian Gulf oil, appeared unfazed by criticism from states that took part in a recent test that the administration's approach produced "a disaster economically."
Subcommittee Chairman Mike Synar (D-Okla.) recalled that President Reagan vetoed the standby petroleum allocation act in 1982 and recommended that citizens "who are concerned about the possibility of energy shortages and higher prices in the future should use the current opportunity to prepare in ways that are appropriate to their situation."
Synar, noting that the administration had done nothing during the test to alleviate the economic consequences, asked Vaughan how the American people should respond to Reagan's recommendation.
Using farmers as an example, Vaughan said the Energy Department recently has been assisting cooperatives that serve farmers "to acquire crude oil, and certainly it is possible for them to so acquire it and arrange for processing arrangements.
"We encourage not only farmers but local governments to do likewise," Vaughan said. "We believe that is the kind of rely-on-yourself, prepare-for-emergencies-yourself that makes sense rather than looking to Uncle Sam to solve your problems."
Synar noted that on the basis of testimony from the states, this approach to energy self-sufficiency might be more difficult for elderly and low-income families.
"This administration's policy on this matter, which no one claims is uncontroversial, is quite clear," Vaughan said. "All we have done is to barely indicate in this test circumstance the implementation of that policy."
Vaughan also was critical of assumptions behind the test, coordinated by the International Energy Agency, which was formed in 1974 to help the United States and 20 other industrial nations cope with future oil emergencies.
He charged that test bore "no rational relationship to real world conditions."
But David Burns, director of the office of energy consuming countries at the State Department, said he felt the scenario--which postulated a cutoff of oil from the Persian Gulf--"could turn out to be quite similar to what we would have to deal with in the Middle East any day now."
Both Burns and representatives of the General Accounting Office, which has been looking into the administration's preparations for a new oil crisis for more than a year, testified that America's allies were concerned whether the United States would adhere to agreements to share available oil in the event of a new crisis.
GAO associate director Allan I. Mendelowitz said the Energy Department's behavior during the test raised questions in the minds of many U.S. allies "as to how seriously the United States views the sharing system."
As a result of this, an IEA task force plans to make a special trip to Washington next month in an effort to determine where the Reagan administration's free-market policies fit in with those the other 20 nations, which have standby regulations to restrain demand and prices and allocate supply in a crisis.