When, at the beginning of April, the 23 oil-exporting countries of OPEC+, including Russia and Saudi Arabia, announced cuts in oil production of more than 1 million barrels per day, it should have been of little consequence.
But by creating a seemingly endless stream of governmental restrictions on domestic oil supply, policy-makers are allowing these countries to gain leverage that they should not have.
When the federal government pursues policies to limit the supply of oil here, the inevitable result is to increase prices while also making the United States more dependent on foreign sources of oil.
Examples of these harmful policies range from President Biden’s cancellation of the Keystone XL pipeline on his first day in office to passage of the so-called Inflation Reduction Act, legislation designed to help pave the way to the end of gas-powered vehicles.
The solutions to countering high gas prices and OPEC+’s newfound leverage are straightforward. Policymakers must stop hindering efforts to increase the oil supply. By simply getting out of the way, they could help bring down gas prices.
President Biden could help counter any effect on gas prices caused by the OPEC+ cuts by expressly signaling to the market that the United States is going to unleash its energy potential.
In March, the House passed H.R. 1, the Lower Energy Costs Act, which should help to address these problems, including through its removal of obstacles to oil production But unless it becomes law, and other policies to increase supply are adopted, there’s little reason to think the situation will improve.
Instead of pursuing solutions that target the root causes of the problem, President Biden has been irresponsibly tapping the nation’s emergency oil stockpile, the Strategic Petroleum Reserve, to ineffectively hold down prices. When Biden took office there were 638 million barrels in the oil reserve. As of the end of February, the most recent data available, there were just 372 million barrels.
Tapping the Strategic Petroleum Reserve isn’t a solution to high prices or a proper response to OPEC+, but merely a political band-aid. There have been reports indicating that OPEC+’s actions may have been caused by the administration not honoring its reassurance to Saudi Arabia that it would buy oil to replenish the strategic reserves.
Another non-solution advocated by the administration is the push for unreliable EVs that are expensive and, not least because of a lack of supporting infrastructure, don’t deliver the promise of reliability that drivers have come to expect. Some policy-makers apparently think one way to deal with high gas prices is to try to solve the (self-imposed) problem by constraining the demand for gasoline, a process that will be far from pain-free. Their solution is to influence what cars people drive and use the levers of government to achieve this objective.
And ironically, EVs would create a far greater dependency problem than using oil.
The switch to EVs may increase the U.S. dependency on China, notably when it comes to the EV supply chain. China dominates the market for the materials needed for EV batteries, not only (obviously) a key element in the EV, but one that accounts for a significant share of its value According to the International Energy Agency, “China’s share of refining is around 35% for nickel, 50-70% for lithium and cobalt, and nearly 90% for rare earth elements.”
Read the full article at National Review.