The West is experiencing its third energy crisis. The first, in 1973, was caused by an almost fivefold increase in the price of oil by Gulf oil producers in response to US support for Israel in the Yom Kippur War. Their actions ended what the French call the Trente Glorieuses, an unprecedented economic boom after the Second World War.
The second occurred at the end of the 1970s, when the Islamic Revolution in Iran caused the price of oil to more than double. This again created great financial difficulties, but the political response was much better. Inflation was purged at the expense of a deep recession. The energy market was allowed to operate. High oil prices caused offsetting effects, especially in the power sector, and increased supply.
The price of oil rose in nine months from $30 per barrel in November 1985 to $10 per barrel in July 1986. No wonder the economic growth that began under Ronald Reagan had such long legs.
This time is different. The third energy crisis was not caused by Saudi Arabia and its Persian Gulf allies or the Ayatollahs of Iran. It was a self-inflicted, predictable consequence of Western political choices: Germany’s disastrous Energiewende, which empowered Vladimir Putin to launch an energy war against Europe; Britain’s self-righteous and self-defeating policy of “getting energy from the coal of the past” and the decision to ban fracking; and, as Joseph Toomey points out in his powerful recent essay, President Biden’s war on the American oil and gas industry.
Hostile acts were declared during Joe Biden’s campaign for the Democratic presidential nomination. “I guarantee you, “We will stop using fossil fuels,” candidate Biden told a climate activist in September 2019. The White House must hope to sink into the memory hole. Toomey’s paper has all the receipts, so there is no risk.
As he shows On the outside, Biden’s position in 2022 is similar to Barack Obama’s position in 2012. When rising gas prices threatened to sink his re-election bid, Obama responded with a ruthlessness that his former running mate lacked. He simply stopped talking about the climate and went all-in on energy policy, casually claiming credit. A crushing revolution that his own Environmental Protection Agency (EPA) tried to suffocate at birth.
Passing a comically worthy anti-inflation bill puts that option out of Biden’s reach, even if he were so inclined. Democrats are unlikely to make a pledge on climate change after winning a political victory in pushing through Congress what they believe is the most important climate legislation to date.
Although oil prices have fallen back from recent highs, the reasons for high gasoline prices remain the same. The chief among them is a sharp drop in US refinery capacity, which was triggered when the COVID shutdown weakened demand but continued after the economy reopened.
The capacity of the refinery has never been so reduced. Furthermore, Gulf Coast refineries will be operating at 97 percent capacity in June 2022. As Toomey points out, “No more blood is being squeezed out of this turnip.”
Toomey identifies five factors that contribute to refinery capacity declines. EPA biofuel blending mandates impose crippling costs on smaller refiners. Traditional refineries lose up to 90% of their capacity when converted to biofuel processing, and biofuel mandates cost consumers far more than federal excise taxes. Toomey shows that the Biden administration’s claim that biofuel mandates protect consumers from oil price volatility is completely false; he writes that biofuel prices are essentially indexed to the price of crude oil.
Biden May Order Overturning the EPA’s Retroactive Biofuel Threshold Rules. That he has not done so shows that the administration is not serious about making energy affordable again. High fossil fuel prices are part of the plan.
Corporate and Wall Street ESG practises are another factor driving refinery shutdowns, especially those owned by European oil companies, to meet punitive carbon reduction targets, ultimately leading to the closure of these oil companies. If the Securities and Exchange Commission’s proposed climate disclosure rules are finalized, they will increase the vulnerability of U.S. oil and gas companies to climate activists and force investors to divest from their carbon-intensive activities. to oil refining and eventually from the oil and gas sector as a whole.
These should include an aggressive federal policy to phase out gasoline-electric vehicles in favour of electric vehicles (EV); an administration with bottom-up activists who believe climate is the only thing that matters in politics; and an increasingly hostile political climate (“You know the deal,” Biden said of oil executives during the presidential campaign. “If they don’t act, put them in jail”). Toomey says these policies will make China the world’s leading oil refiner for years to come. Should Biden ask China for refined gasoline supplies? He may find that he can avoid such an unfortunate situation, which was further salvaged by Speaker Nancy Pelosi’s recent trip to Taiwan’s southern border with aid.
Mexico is building a $12 billion refinery that will begin producing gasoline next year. Perhaps President Biden’s next foreign trip should be to Mexico City.
The reality check here
