Politics, Pandering and Petroleum Prices

Oil prices were up more than $1 per barrel by Friday after the IAEA proclaimed that Iran was ramping up its enrichment activity, continuing a rally that began more than a month ago. Lingering concerns over oil-rich Iran is in part the reason for the rally, which makes its way to the pocket books of consumers by way of higher gasoline prices. However, with campaign season in full swing in the United States ahead of the November presidential elections, it's likely the politicking and speculation are contributing to the energy woes.

The U.S. Energy Information Agency said the average price for a gallon of gasoline in the United States was around $3.65 as of Monday, an 8.8 percent increase since the start of the year. With the U.S. economy barely emerging from recession, and with the presidential campaign season in full swing, politicians on both sides of the aisle have seized the moment.

President Obama, during a campaign event in Miami, said there's no way to "drill our way to lower gas prices." His treasury secretary even said a case could be made that releasing oil from the Strategic Petroleum Reserve could calm some market jitters, just as it did last year during the height of the conflict in Libya.

On the other side of the aisle, Republican frontrunner Rick Santorum said, during a campaign event in battleground state Ohio, that "radical" environmental policies were to blame for high energy prices while the GOP-backed American Petroleum Institute said it feels the White House actually wants higher gasoline prices in order to back a renewable energy agenda.

Never mind the fact that the United States is actually a net gasoline exporter because of lower domestic demand. A contributing factor in the price of oil, and subsequently gasoline prices, is speculation, so in some ways it's all a self-fulfilling prophecy. It's talk of high oil prices that causes high oil prices. There are some who fear tensions with Iran could translate to $4 or even $5 for a gallon of gasoline in the U.S. market by the summer. So guess what happens? Gasoline prices go up. Even if Republicans got there way, it's unlikely any domestic drilling would cause a sudden precipitous drop in energy prices overnight. And the reason for that is because this largely isn't an issue about oil markets, domestic energy policies or concerns about the health of the European economy. No, this is about fear and anger, two very basic human emotions.

Bipartisan rancor does little to sway energy markets one way or the other. Those in power will say things that make their constituents fearful of change while those seeking power try to make people angry enough to challenge the status quo. That's true no matter what the topic. So when API's President Jack Gerard says "words are not leadership if not followed by the right actions," he may be reflecting a statement of truth more than he knows.

By. Daniel J. Graeber of Oilprice.com