Rising prices at the pumps could prove a liability in the race for the White House

Candidates tread carefully in a nation of car drivers used to low prices

At first glance, it's just another political spat in an already superheated presidential election season. The Bush-Cheney campaign has just started to run a Charlie Chaplin-style ad that resurrects a "wacky" proposal by John Kerry 11 years ago for a 50-cents-a-gallon tax on petrol to help reduce the budget deficit.

The presumptive Democratic nominee responds to this attack with grave-faced appearances at garage forecourts, carefully staged to include evidence of another failure of the Bush administration etched in the heaven above him.

The "failure" is, of course, the rocketing cost of petrol in the US. The issue has now joined Iraq, the economy and unemployment at the heart of the 2004 presidential battle. "If gas prices keep going up," Mr Kerry intones, "George Bush and Dick Cheney are going to have to car pool to work."

By the rather laborious Kerry standards of humour, this is a pretty good line. And it hints at a deeper truth: that for the first time in decades, the national energy policy - or rather the lack of one - of this most energy-profligate of countries will be a matter of serious political debate.

In poor countries, increases in the price of bread have people on the streets. Not so in the US. No matter that, at roughly $1.75 (96p) a gallon, petrol here is still ridiculously cheap by European standards - around one third the price in Britain.

No matter, moreover, that if inflation is taken into account, petrol costs far less than in early 1981, when it reached an adjusted $2.97. In the car-addicted US, the most sensitive basic commodity price is that of petrol - and this White House knows that better than anyone. During his 2000 campaign, George Bush made much of the fact that as an oilman he would know how to manipulate Opec to keep prices down.

Wednesday's decision by the oil producers' cartel to cut production quotas by 4 per cent, despite admonitions from the White House, embarrassingly showed just how far a president's writ runs - especially when the popularity of the US is at all-time lows in much of the Arab and Islamic world.

Instead, some economists forecast the petrol price will increase a further eight to 10 cents this summer, just as the so-called "summer driving season" gets into full swing.

If so, the negative impact for Mr Bush could be considerable. His administration is well aware of how queues at petrol stations helped underline a sense of US impotence in the face of the second "oil shock" in 1979, which contributed to Jimmy Carter's defeat by Ronald Reagan the following year.

The International Energy Agency yesterday warned that oil prices at current levels until the end of this year would cut world economic growth by about half a percentage point.

While the worst impact would be in electorally irrelevant poor African countries, it would cut economic expansion in "rich" countries by about 0.4 percentage points.

But the great petrol controversy is just a part of a wider debate over the proper energy policy for the US, in an age when its dependence on oil from the politically unstable Middle East continues to grow.

Petrol accounts for 40 per cent of total energy consumption by the US (which, with 5 per cent of the world's population, accounts for 40 per cent of global demand for petrol).

Right now the US consumes around 20 million barrels of oil a day, a figure growing by 1 to 2 per cent a year. About 60 per cent of that total is imported.

If nothing is done, that share will rise to 70 per cent by 2025 - and nothing either candidate is proposing in 2004 will change that reality in the short term.

Mr Kerry urges the President to stop replenishing the country's Strategic Petroleum Reserve to its ceiling of 600 million barrels. Mr Bush retorts that to do so would damage national security and that in any case such a move would have little impact on total supplies.

Instead he points to his energy plan - currently bogged down in Congress - that would reduce dependence on foreign oil, encourage energy saving and promote alternative energy sources.

But even if the administration overcame objections by conservationists and opened up the Arctic National Wildlife Refuge (ANWR), the last untapped domestic reserves, the US would still be importing 66 per cent of its oil in 2025.

The political argy-bargy is mirrored by an equally bad-tempered disagreement over the causes behind the high levels of volatility in the oil market. In one corner is the United States, which believes Opec is keeping the oil price artificially high for its own purposes at a time when the world economic recovery is still fragile.

In the other corner, the oil producers' cartel accuses hedge fund traders in the Western financial markets of indulging in speculative activity that is driving the price up at a time when the world is awash with oil supplies as the Northern hemisphere moves into spring.

This was behind Opec's decision to implement its planned cut of 4 per cent - or 1 million barrels a day - from the production quotas set for its 10 key member countries excluding Iraq.

This argument receives some support from independent analysts. Research by Goldman Sachs shows speculative activity is near all-time highs while non-commercial investments are now holding their longest position - betting on further rises - on record.

"We currently estimate that some $5 of the [US price per barrel] is attributable to speculative positions," it said. It forecasts the world will have an excess supply of 365 million barrels in the three months to June - which it says would imply a fall in the Brent price from about $30 to $20.

This is where the counter-arguments kick sin. If the oil price falls this spring, Opec's members will find an oil-coloured black hole in the public finances as revenues dry up.

Goldman Sachs calculates that Opec members need oil prices of between $25 and $30 a barrel to balance their domestic budgets - compared with their formal target of $22-$28.

It predicts that demographic and economic trends in their countries could push that figure as high as $40 over the next five to 10 years. Although this sounds frightening, economists believe the West has benefited from huge structural economic changes that have made it more immune to an oil surge.

HSBC calculates that even oil at $50 would cut US growth by just 0.1 per cent, although it would add 0.4 percentage points to inflation this year. The outlook is gloomier for the eurozone where its anaemic economy would suffer a 0.3 per cent hit with inflation up 0.6 per cent.

Nevertheless Janet Henry, a global economist at the bank, warns that high oil prices would be felt as voters go to the polls. "It would be negative for consumer spending in the second half of this year when the policy stimulus from tax cuts fades," she says.