Speaker of the House John Boehner made a prediction Monday about Barack Obama’s re-election bid. “If gas prices are $5 or $6, he certainly isn’t going to win,”said Boehner in an interview on ABC News.
It might be the least disputable thing a politician has ever said. Well, yes: If people have to keep paying more and more to fill their cars up, the president could lose re-election—even to one of the current batch of Republicans. There’s evidence, circumstantial but graphically compelling, that the president’s current poll numbers are a function of the price of gas.
So: What can the president do about it? The standard answer is, “Not much.” The political answer is, “Glom on to a policy that my party and/or industry wants him to support.” The actual answer is somewhere between these two. There is no shortage of ideas. The issue will be which party or politician is skillful enough at using the politics of the moment—and oil companies will report their new, sure-to-be-massive profits over the coming days—to put any of these ideas into practice.
Here’s the bad news. In times of great panic over gas prices, Republicans and Democrats—and, more subtly, paid-for experts—resurrect some of their favorite energy plans. Democrats want to end tax subsidies for oil companies, and they’ve gotten a lift from Boehner’s ad hoc agreement with them in that ABC News interview. Republicans—again, led by Boehner—say that Obama isn’t taking “all of the above” energy plans seriously. (“All of the above” is a way to mention unpopular energy policies without actually mentioning them.)
“I think the fact that he won’t allow exploration in the Gulf, doesn’t allow exploration in the inter-mountain west, won’t allow us to drill in Alaska, this is not helping the situation,” said Boehner. “And then when you look at what the EPA is doing in terms of the number of rules and regulations comin’ down the pike, those were his responsibility.”
It would be awfully convenient if new drilling licenses in the Gulf and relaxed EPA regulations could drive the price of oil down. They wouldn’t.
“If someone tries to dupe you into thinking we don’t have enough refining capacity, that’s bullshit,” says Tom Kloza, the co-founder and chief oil analyst of the Oil Price Information Service. “It’s a good soundbite, but if anything, companies have probably added too much capacity, and if they add more they have to focus on managing margins.”
It’s a good enough soundbite that a lot of Republicans use it to argue that the White House’s dithering on Gulf Coast drilling, in the wake of the 2010 Deepwater Horizon disaster, is responsible for rising prices. Oil companies, in this telling, are stuck in a sort of “permitorium.” But the Deepwater disaster didn’t have much of an effect on prices. When the rig blew on April 20, 2010, crude was trading around $84 per barrel. When the well was capped on July 15 the price had fallen to $76.
A barrel of brent crude oil costs roughly $50 more today than it did back then. We have some idea why. The critical factor has been the unrest in the Middle East. According to industry analysts, prices have gone up because of worries both about what’s already happening and what could happen. The civil war in Libya, a country that usually produces 1.6 million barrels of light, sweet crude every day, has added something like $20 to the price of a barrel of oil—a combination of decreased availability and speculative panic. Worries about what could happen in other OPEC nations are driving the price even higher.
“At any moment, people wonder if you’ll see firebombs in the streets of Riyadh,” says Kloza. “The Saudis have to cut more checks so people don’t demonstrate against them. That’s not something they’re used to budgeting for.”
This is where we get to the roles the president and Congress could play in controlling gas prices. The “Arab Spring” is blooming (and burning) mostly out of our control. The major role the United States is playing is as the military linchpin of the Libya intervention. It’s an unpredictable, unhappy situation, but no one factor has more bearing on the price of oil. (We can count this as one of the few things Donald Trump is right about.)
So what else can we control? We got a hint of it last week, when Standard & Poor’s announced that it had changed its outlook for the United States to “negative” because our politicians didn’t look likely to reach a conclusion on the debt. The price of oil dropped, albeit only briefly. Why? Because the prospect of an economic contraction meant less demand.
“If there were some kind of a grand budget deal that were to cut spending substantially, that could be viewed as somewhat contractionary in terms of fiscal policy,” says Bruce Bullock, who directs the Maguire Energy Institute at Southern Methodist University’s business school. “That could slow growth down.”
According to Bullock, American policymakers could drive prices down if they were willing to settle for less growth. It was less growth, after all, that was largely responsible for the falling gas prices of 2009. No one’s calling for an increase in interest rates, but that could also drive down the international price of oil.
None of this would be particularly easy for American politicians. Is there anything they could do? Why, yes. The president—or members of Congress!—could skip the coming, predictable assault on oil company subsidies, and take on speculators instead. Wars and economic distress are not new to the oil market. But the market for oil futures has never been as big as it is now. It’s basically quadrupled since the start of the financial crisis, as investors and funds have sought out safe, reliable commodities to invest in.
That’s the political opening. The only question is whether anyone’s actually able to go through it. Theoretically, the president of the United States could talk about this aspect of the gas price problem and elevate it. Unfortunately, the president is Barack Obama, whose every economic move is labeled “socialism” by the opposition, and who has already alienated some of the hedge fund managers in the center of this. A move against the commodities trade from Obama would be less Nixon goes to China than Johnson goes to Vietnam.
But this is the plan Kloza is recommending to Obama, free of charge. “He will piss off Wall Street, no question,” says the oil price analyst. “He will piss off Morgan Stanley. He will piss off Goldman Sachs. He will alienate people, but people will know he’s ready to spank the speculators.”