High gas prices are causing politicians to pander and dissemble--and avoid proposing any real solutions.
12:00 AM, May 24, 2004 • By IRWIN M. STELZER
THERE IS NOTHING quite as effective as $40 oil to turn merely silly politicians into, er, dissemblers. This past weekend Europe's finance ministers and others, all of whom take a lot more out of their motorists' pockets in the form of gasoline taxes than the OPEC oil cartel can ever dream of doing, used a G7 pre-summit meeting in New York to demand that producing nations step up output so as to ease motorists' burdens. Not to be outdone in the oil fantasy league, the producing nations also met to plan to raise the output quotas that they are already exceeding, even though only Kuwait and Saudi Arabia in any position to step up production significantly.
Meanwhile, John Kerry, who admitted to owning a gas-guzzling SUV only after prodding, is accusing President Bush of keeping prices high by refusing to draw down, or at least stop topping off, the Strategic Petroleum Reserve (SPR). Never mind that when Bill Clinton tried to use sales from the Reserve to bring down gasoline prices, he succeeded, if at all, only to the tune of one cent per gallon. Or that the amount of oil going into the SPR amounts to a mere 0.2 percent of world supply, hardly enough to move prices. Or that a good portion of the responsibility for high gasoline prices rests with Democrats and their green allies who have made it virtually impossible to construct refineries in the United States, and have limited the oil industry's flexibility by requiring that different grades of gasoline be used in different cities, depending on local air quality requirements.
President Bush isn't making much more sense than his adversaries. He defends his decision to add 40 million barrels to bring the Reserve to its capacity of 700 million barrels sometime next year by saying that the SPR exists solely to meet a supply disruption--as if such a disruption would not take the form of a sharp run-up in prices, rather than pumps running dry. The question is not whether the SPR should be drawn on in response to price rises--it should, but only if prices rocket at a pace that constitutes a threat to the economic health and hence the security of the United States. Which the relatively gradual rise to $40 definitely does not.
Meanwhile, as if to make certain that the OPEC cartel doesn't feel under any real pressure to step up output, Claude Mandil, head of the 26-nation International Energy Agency (IEA), has asked its members not to use their stockpiles, which match those of the United States, to bring prices down to the $22-$28 range informally agreed between producing and consuming nations at a summit meeting in 2000. Referring to his failure to persuade OPEC to bring prices down, Mandil told the press, "Our discussions with producers did not succeed, that is true. At the same time, we have never lost contact with them." That's all right, then.
But perhaps the top prize for dissembling goes to Saudi Arabia, the leader of the cartel the members of which account for about 43 percent of America's oil supply. It was the Kingdom that induced OPEC to cut output just a few months ago, allegedly for fear of a price-busting market glut. Now, it is urging members to raise the quotas they are already ignoring as they pump oil as fast as they can to profit from high prices. The Saudis say they could produce enough more oil to bring prices down, and have informally promised President Bush that they will do so. But they know that their high-sulfur oil is not of the type U.S. refineries can easily handle, and that even if they started loading tankers tomorrow, those supplies would not reach America until too late to effect gasoline prices at the height of the driving season.
MEANWHILE, some of Bush's advisers are worried that Venezuela's Castro-admiring president, Hugo Chávez, might interrupt supplies to the United States. Chávez is desperate to divert attention from his failed economic policies, and may use the time-tested technique of creating an external enemy, in this case Uncle Sam. Since Venezuela is America's third largest supplier of foreign oil, providing 12.7 percent of our imports (Canada is first with 17.8 percent, and Mexico second with 13.1 percent for the first two months of this year), and its oil is of the quality most suited to the production of gasoline, any cut-off would be a serious blow.
The president's second nightmare relates to the heating season. Heating oil and natural gas prices are likely to be at record levels, at least if not adjusted for inflation. If the weather turns cold before the election on November 2, the ardor of even the president's supporters might also cool. So the White House is hoping for a nice, pleasant Indian Summer.
But most of all, those on the president's reelection team are hoping for a coherent long-term energy policy. They privately admit that the energy bill they are required to advocate is a costly nonsense, and will do virtually nothing to enhance domestic supplies of crude oil, which now meet only about 40 percent of U.S. demand. No one in the administration denies that the solution to America's dependence on foreign oil, and especially on oil from the increasingly threatened Saudi royal family, does not lie in anything the administration proposes. It lies, instead, in making imported oil more expensive, thereby discouraging demand for it and encouraging the development of alternative sources of supply and new technologies. But making imported oil still more expensive is not considered as great a vote winner as encouraging fantasies about the SPR (Democrats), pressing for more drilling in Alaska (Republicans), or relying on the Saudis to keep their word about prices (the IEA). If Bush had the nerve to tax imports, motorists' dollars would flow into the U.S., rather than into OPEC treasuries. Which is too sensible to be considered in an election year.
Irwin M. Stelzer is director of economic policy studies at the Hudson Institute, a columnist for the Sunday Times (London), a contributing editor to The Weekly Standard, and a contributing writer to The Daily Standard.