Here are key three things to keep in mind about Joe Biden’s splashy new plan to bring down gas prices.
First, it’s genuinely historic.
Second, it might only make a modest difference to Americans’ wallets.
And third, it sends an important signal about the administration’s philosophy when it comes to energy and fighting climate change that will frustrate much of the activist left.
Let’s take each point in turn. On Thursday, the White House announced that it would sell off an unprecedented 1 million barrels of oil per day for the next six months from America’s strategic petroleum reserve in order to bring down energy costs, which have spiked thanks to the economic fallout from Russia’s invasion of Ukraine.
Just as a refresher: The U.S. strategic reserve, which holds vast reservoirs of crude in salt caverns beneath Texas and Louisiana, was created in 1970s after the Arab oil embargo to ensure that the country would have enough petroleum in cases of war and national emergencies. Past presidents have tapped it during the gulf war, the aftermath of hurricane Katrina, and during the 2011 crisis in Libya.
Biden himself has released some of its oil previously in unsuccessful efforts to tamp down prices. But at 180 million barrels total, this would be more than three times larger than any previous drawdown in the reserve’s history, according to a note by ClearView Energy Partners. “It is hard to overstate the scale of this intervention if it bears out,” the firm said in a note.
It’s a drastic move by a president facing desperate political circumstances. Biden’s approval rating has fallen to new lows in some polls thanks in large part to voters’ frustrations over 40-year-high inflation and gasoline prices that now average well over $4 per gallon across the country.
The announcement alone already appears making a difference, at least around the edges. U.S. oil prices have already fallen by about 7 percent, to just under $100 a barrel, since news of the administration’s plan was first reported on Wednesday night, as buyers have begun to factor in its impact on the market.
But whether prices will fall much further is unclear. At the moment, the world is missing an estimated 2 million barrels a day of Russian oil production, thanks to a combination of official sanctions and the decision by many companies simply not to buy any supply from the country. The International Energy Agency expects that gap could grow to 3 million per day. (Overall, the world consumes 99 million barrels of oil daily.)
The barrels Biden is releasing won’t make up that shortfall on their own. And while U.S. allies have announced they will also draw down some of their strategic oil reserves, they haven’t announced how much. As a result, most experts seem to think of it as a stop gap. One oil executive interviewed by the New York Times called it a “Band-Aid” solution. David Goldwyn, an energy consultant and former state department official I spoke with, was a little more generous, calling it a “a tourniquet on a bleeding wound.”
So why not just release more? I asked the White House that question, given that the strategic reserve currently contains 568 million barrels, out of its max of more than 700 million. A spokeswoman told me that it was because the administration believes the U.S. oil companies will eventually be able to increase their own production by about 1 million barrels daily, and the administration only wants to treat it as “a wartime bridge to increase oil supply until production ramps up later this year,” as Biden put it in a speech yesterday.
And that brings us to the philosophy angle. Tapping the existing reserve is only one part of the equation; the other part is more new oil. To put it bluntly, despite his commitments to fighting climate change, Biden has entered the “drill baby drill” phase of his presidency.
One of the reasons U.S. oil production has yet to recover to its pre-pandemic levels, despite high prices, is that drillers have been under pressure from investors to pocket higher profits rather than invest them into new wells. This isn’t some kind of conspiratorial speculation: Industry leaders have been saying it publicly themselves. In recent survey of 100 oil and gas executives by the Federal Reserve Bank of Dallas, the majority said that shareholder pressure to “maintain capital discipline” was the main thing holding back growth.
Biden has frequently pointed this out, while defending himself from (largely ludicrous) Republican charges that he is personally responsible for today’s high oil prices. The plan he announced Thursday is aimed at making fossil fuel companies drill more. First, the White House is asking Congress to pass legislation that would make companies pay financial penalties if they don’t produce oil on federal lands they’ve leased. (The administration often notes that there are 9,000 approved drilling permits currently going unused.) Importantly, West Virginia Sen. Joe Manchin, who more or less gets to decide what if anything passes through Capitol Hill this year, apparently backs the idea.
Beyond that, the administration is promising to replenish the Strategic Petroleum Reserve down the line by buying oil when prices fall again. National Economic Council chair Brian Deese said on the Thursday that the goal would be to “stabilize” the market. The message is that oil companies should feel comfortable investing in new production now, because the administration will do what it can to ensure that prices don’t collapse later on.
Biden has tried to give these announcements a sort of anti-corporate profiteering spin. As he put it in his speech:
I say: Enough. Enough of lavishing excessive profits on investors and payouts and buybacks when the American people are watching, the world is watching.
U.S. oil companies made nearly $80 billion in profit last year. And this year, those profits are expected to continue to soar.
This is not the time to sit on record profits.
This is not the time to sit on record profits. It’s time to step up for the good of your country, the good of the world; to invest in immediate production that we need to respond to Vladimir Putin; to provide some relief for your customers, not investors and executives.
A little less “drill baby drill,” and more “drill you assholes drill.” But functionally, the message is the same. Even as the administration is pushing for policies that will decarbonize the economy over the long term, the administration badly wants the oil industry to produce.
This is a pretty subtle but firm rejection of the way many environmental activist groups have approach climate change in recent years. As Robinson Meyer recently wrote at the Atlantic, the guiding principle for many of left-wing climate hawks over the past decade could be summed up by the slogan “keep it in the ground”—“it” meaning any sort of fossil fuel. Practically speaking, this has meant fighting against new drilling and pipelines whenever possible, with the idea being that limiting supply would raise the price of oil and gas and force the world to transition to cleaner forms of energy.
Early on, the Biden team seemed at least a little amenable to that philosophy, though they were by no means consistent practitioners of it. During his campaign, the president promised to halt new drilling on federal lands (he didn’t exactly follow through once in office) and handed the left a major moral victory by killing off the always controversial Keystone pipeline. But the problem with “keeping it in the ground” is that, when gas prices actually rise, voters tend to get angry, and start looking for politicians who will take oil out of the ground. The White House seems to be adopting the outlook that, if it wants political space to deal with climate change in the long term by implementing plans to decarbonize the electric grid or encourage electric car adoption, it needs to keep gas prices stable and voters content—as much as possible—in the medium term.
At least some environmental groups are grousing about Biden’s approach. “Putting more oil on the market is not the solution to our problem but the perpetuation of our problem,” Mark Brownstein, a senior vice president at the Environmental Defense Fund, told the New York Times. But Democrats have clearly realized that if they want a chance to save the planet, they’re going to need to drill and chew gum at the same time.