Obama’s Inaction Factors Into Rising Crude, Gas Prices

Football legend Knute Rockne frequently reminded his players that when the going gets tough, the tough get going. Off the field, the adage holds true. Since real leaders don’t freeze but act when confronted with difficult situations, Americans facing rising energy prices are left to wonder, “what’s President Obama next move?”

In the past several weeks, the price of crude oil has climbed from $80 to $100 a barrel. Gasoline has followed the steep climb of crude with the domestic price at the pump averaging $3.42 a gallon — a roughly 30 cent increase. Meanwhile, the White House doesn’t appear to be acting to change the dynamics driving up these prices. In the weeks since the contagion of political unrest has gripped North Africa and the Middle East, the White House has done nothing to take the steam out of the market’s response to potential supply disruptions.

The President’s inaction prompts two questions: What could he have done, and what can be implied by his deafening silence?

In order to send a strong and compelling message to the market, he could have shown that our economy will not be held hostage to political instability in one of the most unstable regions in the world by announcing his intention to release oil from the Strategic Petroleum Reserve (SPR) if the price of oil reached a certain threshold such as $100 a barrel. President Obama then could have announced plans to begin exploration and production in areas currently off limits.

Markets respond to actions and expectations. The market for crude oil is responding not to an actual reduction in imports (it takes weeks for tankers to reach destinations here) but to an anticipated one. A promise to release oil from the SPR would give investors an assurance against the possibility of any reductions and, therefore, would have a counteracting effect on the pressure on price.

Though a decision to expand domestic production would not have an immediate impact on supply, it would send an instant message to the market regarding a future reduction in our reliance on oil from unstable regions.

Failure to take any action along these lines leads to the question: why? The obvious answer is that the President and his advisors like higher energy prices. The pressure they exert on American consumers help advance his long term agenda of replacing petroleum based transportation fuels with small, high mileage cars and electric vehicles like the Leaf and Volt.

Currently, consumers aren’t buying what the Administration’s selling. In February, Chevy sold only Chevy 281 Volts, and Nissan sold just 67 Leafs. The demand for these vehicles follows the price of gasoline. When the price of gasoline reached $4 a gallon, demand soared; when it got to $3 and below, demand fell like a rock.

The President’s Secretary of Energy, Steven Chu, believes that a gradual increase in gasoline taxes could coax consumers into dumping their spacious vehicles and finding homes closer to where they work. According to Chu, “Somehow we have to figure out how to boost the price of gasoline to the levels in Europe.” He has argued that higher costs per gallon could force investments in alternative fuels and spur cleaner energy sources. That is the philosophy of the Administration and now forces on the other side of the globe are turning it into a reality.

Unfortunately, inaction like action has consequences. One of those is diverting consumer spending and consumer confidence. Each penny increase in gasoline prices represents about $1 billion annually. That means that the price increase this year will translate into $30 billion that will not be spent on the goods and services that would boost the economy.

Second and more tragically, gasoline price increases hit the less fortunate and those on fixed incomes more dramatically than other segments of the population. Not only are they paying proportionally more of their earnings for fuel but also more for products that are shipped by truck. So the people in whom the President claims he is most interested in helping are the same ones being hurt the most by an energy policy that borders on a dereliction of duty.