Amid predictions that the economy's recovery will continue at a moderate pace, White House officials are keeping an increasingly wary eye on oil prices, worried that an election-year spike in the cost of gasoline could dampen consumer confidence and quash President Barack Obama's recent economic and political gains.
Obama advisers point to oil's $23 per-barrel increase in the first half of 2011 over 2010 prices as the factor that eroded purchasing power and slowed growth last year. At the time, unemployment remained stuck at 9.1 percent for three months, and by August Obama's approval rating stood at a low of 38 percent.
In an annual report issued Friday, Obama's economic advisers drew attention to improved economic data and a range of private sector forecasts that place unemployment at between 8.0 and 8.6 percent for the end of 2012. And they note that economic growth so far has been nearly as fast as the recoveries after the 1991 and 2001 recessions.
But gasoline prices -- right now at a national average of $3.53 per gallon and rising -- are higher than they were at this time last year. Amid continued turmoil in the Middle East and building tensions with Iran, investors are betting that supplies will remain tight in the months ahead and Obama administration officials worry that any disruption in the flow of oil from Iran will result in a rise in global prices.
Obama has been using the threat of higher oil prices as justification for extending a 2 percentage point payroll tax cut through the end of 2012, thus avoiding a $40 reduction in the average worker's paycheck.
"When gas prices are on the rise again -- because as the economy strengthens, global demand for oil increases, and if we start seeing significant increases in gas prices, losing that $40 could not come at a worse time," Obama said this week.
And Alan Krueger, the head of Obama's Council of Economic advisers, praised congressional passage of the tax cut extension, saying it would "provide some insurance again potential shocks that might be coming our way from gasoline because of developments abroad or for other reasons."
Obama aides say that even with the payroll tax cut extension, the threat of higher gas prices striking while the economy is recovering moderately has created anxiety in the White House.
Last year, as prices rose, Obama authorized the sale of 30 million barrels of oil from the country's emergency reserves. It was the largest release ever from the U.S. Strategic Petroleum Reserve.
This week, White House spokesman Jay Carney said Obama was looking to address dependence on foreign oil by increasing domestic production of oil and gas and increasing spending on clean energy. But those are efforts would have little impact on short term price spikes.
As for tapping the Strategic Petroleum Reserve once again, Carney said, "we never take options off the table."
Friday's report comes amid a recent spate of good economic news for the administration. Unemployment for January was 8.3 percent, auto sales are up, unemployment aid applications are down, and factories are producing at a healthy pace.
But the report raises says the European debt and financial crises present another red flag for the U.S. recovery.
"Shrinking purchases of American goods and services by Europeans could have a significant impact on U.S. employment in several states," the report states.
Moreover, the report says, any declines in confidence in Europe could hurt the ability or willingness of European firms to invest in U.S. companies.