The Obama Watch

Obama’s War on Oil

A campaign promise kept: he wants higher gasoline prices and his policies guarantee they will only go higher.

By 5.4.11

Send to Kindle

As a guest on a black radio talk show recently, I suggested that someone ask President Obama what his plan is for bringing down high gasoline prices.

What a gaffe that question would be. The current high gas prices, and more, are precisely the President's plan.

President Obama's Secretary of Energy is former Berkeley physics professor Steven Chu, who said in 2008, "Somehow we have to figure out how to boost the price of gasoline to the levels in Europe." We still have a way to go to achieve Secretary Chu's goal. The average price for a gallon of gas in Europe is over $8.

President Obama's Secretary of Interior is Ken Salazar. When he was a Senator in 2008, he proclaimed on the floor of the Senate that he would oppose any offshore drilling no matter how high the price of gasoline rose, even to $10 a gallon.

When President Obama took office in 2009, the average price of gasoline in America was $1.83 a gallon. Today it is more than double that at $3.87. As the above quotes indicate, the Obama Administration's policy is to increase it well beyond that.

Extremist Quackery

Why would President Obama want high gas prices? It's a matter of ideology for him. He thinks it's good for the environment for gas prices to be high. The higher gas prices are, the less you will drive.

Also, higher gas prices make his beloved "alternative fuels" more competitive. That is because these alternative fuels are inherently more expensive, and so can't compete with cheaper gas. Note this is not a prescription for easing the financial burden on working people. High gas prices make it more likely you will buy expensive "alternative fuels." But either way, your wallet will still be drained.

Worst of all, these "alternative fuels" are not anywhere near sufficiently viable to power the modern American economy into the 21st century. To sharply restrict and drive up the price of the traditional energy that can power our economy today decades before any possible alternative energy can take on the burden is a policy of national economic suicide. That is President Obama's energy policy today.

Don't even bring up the notion of global warming to justify President Obama's high gas price policy. I have discussed the discredited science behind that phony ideological claim in this space in detail before. If you need a refresher course, check out the Heartland Institute's definitive, 800-page tome Climate Change Reconsidered. The most advanced climate scientists such as MIT's Richard Lindzen now have definitive proof that man-caused greenhouse gas emissions will not raise earth's temperatures anywhere near dangerous levels. The increased CO2 in the atmosphere and the resulting slightly increased warmth will only improve agricultural productivity and human health.

These are the reasons why Victor Davis Hanson wrote in a recent column, "So much of this Administration's talk about energy sounds similar to a bull session in the faculty lounge, or what we would expect from lifelong bureaucrats and public functionaries who have never experienced long commutes or struggles in the harsher, profit-driven private workplace."

Supply and Demand

President Obama has raised gas prices by carrying on a war against U.S. oil production. One year after the Deepwater Horizon Gulf oil spill, the environment in the gulf has mostly recovered, but the same cannot be said for the American economy. Instead, after a deepwater drilling moratorium declared illegal in several judicial rulings that still dragged on for months, and then a continuing drilling permit slowdown also judicially condemned, giant deepwater drilling rigs have now been uprooted from the Gulf of Mexico and sent to friendlier economic environments in the Congo, Brazil, and elsewhere. The Gulf of Mexico has been a mainstay of U.S. oil production for decades with little adverse environmental effects. But President Obama seized on the opportunity provided by the spill to shut down as much of the Gulf production as possible. Maybe that political opportunity is why the Administration was so slow to act to minimize damage from the spill.

Also never recovered from the spill has been the congressionally-approved offshore drilling plan for the eastern Gulf of Mexico, the South Atlantic, and the mid-Atlantic, which President Obama deep-sixed in response to the spill. That action alone deprives the American people of an estimated 7.6 billion barrels of oil and 36.6 trillion cubic feet of natural gas.

Just warming up, the Obama Administration also rescinded already issued permits for drilling in the Chukchi Sea off Alaska. Shell Oil recently discovered that after spending $4 billion to develop shallow-water drilling on vast tracts already leased from the federal government in the Beauford and Chukchi Seas north of Alaska, President Obama's EPA has denied it permits to begin exploratory drilling. That leaves another estimated 27 billion barrels of oil in the ground.

But the Obama Administration has not just squelched offshore drilling. Drilling opportunities have been withdrawn in Montana, and oil shale production activities have been stopped in Colorado and elsewhere in the American West.

In December, the U.S. Fish and Wildlife Service began the process of listing the dunes sagebrush lizard as an endangered species. As Investors Business Daily explained on April 28:

If the dunes sagebrush lizard, now considered a separate species, is granted endangered status, oil and gas production in the Permian Basin in New Mexico and Texas may have to be shut down…. The Department of Energy says the Permian Basin has a quarter of the nation's proven reserves and 20% of the nation's daily production comes from there. It has a quarter of the nation's active oil and gas wells and is home to 21% of the rigs actively drilling in the U.S.

Supply down, prices up. That should not be too hard to understand even for a grassroots Democrat. But highly skilled Obama propagandists say, hold on, domestic oil production for 2009 and 2010 is up, not down. President Obama cited the figures himself, saying, "So any notion that my administration has shut down oil production might make for a good political sound bite, but it doesn't match up with reality."

But the reality is that just as the economy grows over time, oil production is supposed to grow with it. All of the above actions the Obama Administration has taken to shut down oil production means unambiguously that oil production is now or soon will be lower than it would have been otherwise. Which means prices are higher than they would have been otherwise.

Moreover, oil is not produced by flipping a switch. It takes years of development. Which means the increasing oil production in 2009 and 2010 that Obama and his propagandists cite is due to the policies of the Bush Administration. The impact of the policies adopted by the Obama Administration over the last two years, as part of its War on Oil, will be seen in oil production figures in the years ahead. Already the Energy Department projects that oil production in the Gulf will be down 20% just this year. That translates into a loss of 375,000 much needed, good paying jobs. The Department further projects that domestic oil production overall will drop sharply over the next two years.

In addition, oil markets today are not blind to what is coming down the pike. Today's oil price reflects the outlook for tomorrow. And constrained supplies tomorrow mean higher prices today. Opening up new oil supplies for tomorrow will similarly mean lower prices today.

Beyond oil supply and demand, there is another powerful factor driving up oil and gasoline prices. The price of oil tracks closely with the price of gold going back many decades. Look it up for yourself. The same wildly loose, Keynesian, Federal Reserve monetary policies (fully backed by President Obama) that have been causing gold to soar are causing oil to soar as well, along with other commodities across the board. Hence the rise of inflation, which is causing real wages to decline in this brave, new world of Obamanomics.

Obama's Scapegoating: Another Abuse of the Public

In addition to the above abusively misleading propaganda, President Obama is already scurrying to deflect blame for the gas price suffering resulting from his deliberate policies to others -- the scapegoats.

He has ordered the Justice Department to investigate the possible illegal actions of speculators. In his April 23 radio address, Obama bragged that as a result the Attorney General has "launched a task force with just one job: rooting out cases of fraud or manipulation in the oil markets that might affect gas prices, including any illegal activity by traders and speculators. We're going to make sure no one is taking advantage of the American people for their own short term gain."

But unless the Justice Department is going to investigate President Obama and his policies, that last sentence cannot possibly be true. When Attorney General Eric Holder said his task force had already uncovered a couple of things that are disturbing, the Wall Street Journal editorialized in response, "That must be some crack squad."

That response was apt because all the sermonizing about speculators is a long standing, disreputable abuse of the public raised by political scoundrels every time oil prices rise. Oil prices are set in a world oil market. Speculators speculate that oil prices will fall as well as that they will rise. If they speculate the wrong way, they lose their shirts. That is why an exhaustive investigation in 2008 by the Commodities Futures Trading Commission, which unlike Obama's politicized Justice Department actually enjoys expertise on the issue, concluded that the net effect of speculation was to reduce prices. That is because all the speculation just nets out to accelerating market recognition of supply and demand conditions, making oil prices smoother and less volatile, reducing risk and hence price.

That is why as Investors Business Daily editorialized on April 26, "At last count, 35 such investigations have been conducted over the decades, and none -- not a single one -- has turned up wrongdoing by investors or oilmen." All of this talk of speculation is just boob bait for bubbas, intentionally misleading the gullible, uneducated, and easy to command. As IBD added, "Rather than carry out another useless inquisition of private citizens, our political class should be investigating its own role in the price crisis. The result would be a revelation for those who fall for Washington's line about greedy businessmen whenever gasoline prices become painfully high."

But President Obama does have a policy answer to the question, what is your plan to address rising gas prices? He wants to raise taxes on oil companies. With all of the profits oil companies are making, Obama says, they don't need any subsidies. He labels $4 billion in tax loopholes as oil company subsidies and calls for those loopholes to be closed.

Oil companies should not be getting subsidies from the government in any event. But the dollar amount of oil profits is high because the oil companies invest such huge amounts to produce oil. As a return on investment or sales, oil profits are modest. While ExxonMobile and the other oil companies earn about 7% on sales, respected public citizens such as Google, Microsoft, and McDonald's regularly earn 20% or more.

Moreover, the fundamental truth is that the government doesn't subsidize oil companies. Oil companies subsidize the government. ExxonMobile alone pays more in income taxes than the bottom 50% of income earning citizens combined. In 2008 alone, ExxonMobile paid $116.2 billion in taxes. The effective corporate tax rate for all oil companies in 2008 was 42.3%.

In addition, the tax provisions Obama calls subsidies for oil companies involve the oil depletion allowance, expensing for indirect drilling costs, and the foreign tax credit, the first in the tax code since the beginning almost 100 years ago. But these are standard tax provisions allowed all mining, manufacturing and international companies for business expenses, depreciation and taxes paid to foreign governments, not subsidies. Abolishing them for oil companies would involve simply punitive taxation appropriate only for political scapegoats.

But this policy answer should earn President Obama a follow up question: how does raising taxes on oil companies reduce oil prices? Answer: it doesn't, it raises them even more.

A Consistent Obama Policy

When a citizen did manage to ask President Obama about rising gas prices recently, Obama answered coldly, "If you're complaining about the price of gas and you're only getting eight miles a gallon, you know, you might want to think about a trade-in."

But at least President Obama's answers and policies on the issue have been consistent. When asked about allowing more drilling during the 2008 campaign, he answered, as quoted by Investors Business Daily, that such drilling would not "lower gas prices today. It would not lower gas prices this summer. It would not lower gas prices this year." He added that "There's no silver bullet that can bring down gas prices right away," and anyone who says otherwise is just "trying to grab headlines or score a few points." He said he would not offer the "false promises, irresponsible policy and cheap gimmicks that might get politicians through the next election."

In other words, he did not campaign on bringing down gas prices. He said actually that doing so was not possible, even though policies enacted that very fall opening up future oil supplies led to collapsing oil prices soon enough.

America holds vast energy resources, far more than any other country overall, enough for America to be the world's number 1 coal producer, natural gas producer, nuclear power producer, and darn near the world's number 1 oil producer, if producers were just set free. But voters already have their answer from President Obama on this issue. If you want the lower gas prices, lower oil prices, and lower energy prices necessary for a booming economy, you are going to have to get yourselves another President.

Like this Article

Print this Article

Print Article
About the Author
Peter Ferrara is Director of Entitlement and Budget Policy at the Heartland Institute, General Counsel of the American Civil Rights Union, Senior Fellow at the National Center for Policy Analysis, and Senior Policy Advisor on Entitlements and Budget Policy at the National Tax Limitation Foundation. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.