For the fourth straight week, energy issues dominated the Democratic and Republican weekly addresses. I wonder why they bother to make new videos: The president and whoever is the Republican-of-the-week say the same thing every time. Just replay the first energy-themed addresses and leave it at that!
As long as the president is going to repeat his call to end subsidies for big oil, though, I’m going to echo it with the call to end all energy subsidies. As I’ve written before, it’s a myth that the tax code favors oil over renewables; in fact, under the Obama administration, renewable energy has been and continues to be more heavily subsidized by tax carve-outs than any other energy sector. We all know how those alternative energy subsidies have worked out for us. It doesn’t matter who the cronies are; crony capitalism is the problem.
The president also implied in his address that high prices right now might be partially the fault of traders “who distort the price of oil, and make big profits for themselves at your expense.” But Daniel Yergin, chairman of IHS Cambridge Energy Research Associates, explains in The Wall Street Journal that “the oil market is [just] reading the front page.” The price reflects what’s going on in the world. Far from a distortion, it’s the one reflection we have of the state of American energy today. Yergin writes:
In 2012, the reason is mainly geopolitics. Last November, the United Nations declared that Iran was clearly developing nuclear-weapons capabilities. The West is responding with sanctions aimed at reducing Iran’s ability to export oil, on which it depends for more than half of its government revenues, to get it to halt its nuclear-weapons program. Tehran has answered by conducting large naval exercises and threatening to close the Strait of Hormuz, through which passes some 35% of the world’s oil exports.
Global oil prices and U.S. gasoline prices have both risen about 20% since mid-December. And all this is occurring in a world oil market that is already tight, tighter than it was last year, with no more than 2.5 million barrels of spare capacity. At least half a million barrels a day are currently out of the market because of disruptions in South Sudan and Yemen and civil war in Syria.
A market this tight would already be susceptible to upward price pressures. But the market is operating on expectations that supplies will become even tighter as new U.S. and European sanctions against Iran take effect and the risk of military conflict increases.
These facts actually work in Obama’s favor; there’s no need for him to invoke traders “who distort the price of oil.” Still, while it might be true that the president isn’t responsible for every factor currently driving up the price of gas, he also can’t hide the evidence of the first three years of his administration. At every turn, he has pursued an energy policy that punishes oil and gas companies and rewards alternative energy companies. Had he taken a different approach from the beginning, we might not be facing the high prices we do today. Yet, in the face of these high prices, all the president proposes is to double down on his already questionable approach. Perhaps he lacks the humility to learn from his past mistakes.