Washington’s World: June 27th – July 3rd, 2011

The recent foreign policy headlines have focused on President Obama’s statement on Afghanistan and the Congressional attempts to limit US operations in Libya. Of much greater import to US policymakers, however, was the decision to release 60 million barrels of oil from the strategic petroleum reserve. While presented as a response to the shortfall of Libyan production, officials tell us that this was, first, a direct response to the failure of OPEC to raise production quotas at their June 8th meeting and, second, a move to mitigate rising gasoline prices in the US. With the Federal Reserve pointing to a continued soft recovery in the US and threats to the international banking system increasing in Europe, concern is mounting in the White House about Obama’s re-election prospects. This concern was reflected in Obama’s decision about the pace of withdrawal from Afghanistan which has drawn statements of disappointment from liberal and conservative analysts alike. The underlying rationale was not, however, a foreign policy one. As a State Department official put it to us: “We know we cannot please the two ends of committed opinion about Afghanistan, so we have tried to split the difference. It is clear, however, that public opinion is losing interest in the war. So we feel that we are safe ground in winding things down.” Electoral considerations will also be in play in the likely September vote in the UN General Assembly on Palestinian statehood. While expert opinion within the Administration remains divided about the substantive wisdom of this matter, lobbying by well-connected domestic interest groups are making the decision more subject to electoral considerations. In the meantime, economic diplomacy will pre-occupy the White House. Obama and his top economic advisers have been applying consistent pressure to their European counterparts to find a solution to the Eurozone banking crisis. A Treasury official commented to us: “Negotiations on the US federal debt ceiling are at a fragile stage. We simply cannot absorb another blow to confidence.”