As retail gasoline prices rise to $3 per gallon across the United States, gas prices are a hot political topic in Washington once again, with the Democrats hoping to slam Donald Trump for causing pain at the pump and Republicans trying to shift blame back on their opponents.
High gasoline prices have long presented dangers for politicians, particularly for those in power when prices rise. The debates often make for great political theater, although they typically fall far short on the substance.
The spike in crude oil prices in 2008, during the heat of the presidential election, popularized the “drill, baby, drill” slogan and also led to calls from both Senators John McCain and Hillary Clinton for a “gas tax holiday” – a temporary suspension in federal gas taxes.
During the Arab Spring in 2011, and the outage of oil supply in Libya, prices spiked again. Republicans blamed former President Obama for high prices, charging that his refusal to allow more drilling caused prices to rise. His release of oil from the strategic petroleum reserve also came under criticism. Years later, when prices crashed because of the oil market downturn, Obama took credit for low gasoline prices.
We haven’t heard much about gas prices since 2014, but with WTI over $70 and gasoline back to $3 per gallon, suddenly it is a hot topic again.
The Democrats held a press conference on Wednesday in front of an ExxonMobil gas station in Washington to blast the Trump administration for high gasoline prices. “It’s time for this president to stand up to OPEC,” Senate minority leader Chuck Schumer said. That was accompanied by a letter by several top Democratic Senators asking Trump to “pressure” OPEC to “increase world oil supplies in order to lower prices at the pump during the upcoming summer driving season.” They noted that the run up in gas prices could cancel out the benefits of the tax cuts from last year.
The Democrats also blamed Trump’s foreign policy for the price increase. “There’s a straight line between Trump’s policies and the price of gasoline,” Sen. Brian Schatz told Politico.
Not to be outdone, the Republicans responded according to the typical script. Senator Lisa Murkowski said the Democrats should support more drilling. “This is pretty simple. If you don’t support access, leasing, production, pipelines, refineries, or the reasonable regulation of all of those, you’ll be left at the mercy of countries that don’t like us.”
In California, Republicans are pushing a ballot initiative to repeal a state tax on gasoline and diesel, a move they hope will turn a political weakness into a strength. But any cut in fuel taxes would drain funds for infrastructure. “Folks need to understand what the gas tax dollars are going to be used for," Carl Davis, research director at the left-leaning Institute on Taxation and Economic Policy, told E&E News, "and if the repeal happens, what projects won't happen, what roads won't be repaired, what bridges won't be repaired. You have to get specific with people about where the money's going to go or not if there's a repeal."
The position from both parties is predictable, and a flip of the script from a few years ago when a Democrat was in the White House. Despite what the Democrats say, Trump can’t simply order OPEC to increase production. “The influence of the U.S. on an OPEC meeting is basically zero,” Thomas Cape, senior analyst at Evercore ISI, told Bloomberg. However, they are right in that Trump has contributed to higher prices by scrapping the Iran nuclear deal, which helped push WTI over $70 and Brent up to $80 per barrel.
As for the Republican comments, they are right that higher production has kept prices somewhat in check, and indeed, shale output was a major factor in the oil market meltdown that began in 2014. Yet, it is odd to demand that the Democrats should support more drilling – the Trump administration has already essentially pulled out all the stops to allow drillers unfettered access to every corner of the country. It’s way off base to argue that oil prices are going up because the Democrats are not sufficiently supportive of drilling.
In reality, the Trump administration doesn’t have much control over the situation, barring a reversal in the belligerent foreign policy towards Iran or a major sale of oil from the strategic petroleum reserve, the latter of which, in any case, would be a one-shot affair. Just about any other policy initiative – whether supporting more supply or trying to curtail demand – not only isn’t all that effective in the short run, but would have only marginal impacts on the global price of crude oil.
In that sense, far from having heavy influence over OPEC, the Trump administration will be at OPEC’s mercy when it meets in Vienna in a few weeks.
By Nick Cunningham of Oilprice.com
