Prices are ticking up again at the pump. The cost of gas is nowhere near the $5 per gallon national average of mid-June, but it has risen half a dollar in the past month, to nearly $4. So on Tuesday, the White House announced that it would release another 15 million barrels from the Strategic Petroleum Reserve to “bring down costs.” But more importantly, the administration pledged to replenish the reserves when prices are at or below $67 to $72 per barrel, to “help create certainty around future demand for crude oil.”
This pledge effectively amounts to a subsidy from the executive branch to the fossil fuel industry—and yet the industry and Republicans alike are throwing a hissy fit about it.
The Strategic Petroleum Reserve, billed as the world’s largest supply of emergency crude oil, is a vestige of when the U.S. government looked to play a more direct role in the production, distribution, and price of one of its most important natural resources. Many other tools used to handle oil shocks in the 1970s have been allowed to wither, making the SPR one of the few options readily available to presidents who want to get a handle on gasoline prices. Biden’s move will complete a 180-million-barrel drawdown from the SPR embarked on earlier this year, when the reserve contained 580 million barrels of crude, in response to what the White House calls “Putin’s Price Hike.” (The rise in gas is only partly the result of Western sanctions on Russia, a major oil producer.)
As for the promised replenishment, the White House intends to use fixed-price contracts to become a big, guaranteed buyer of crude oil at prices where drillers here can invest in more production and reap profits. In other words, Biden is promising to insulate them against low (read: unprofitable) prices. And since the SPR has and will continue to raise revenue from sales, he won’t need congressional approval to do it.
But industry representatives and their Republican allies are hardly thanking the president for the handout.
“At a time when American energy can be a stabilizing force at home and abroad, we urge caution in continuing to rely on short-term efforts that are no substitute for sound long-term policies that enable American energy leadership,” the American Petroleum Institute wrote in response. “The administration should instead focus on addressing the fundamental economic and security challenges we face by spurring more investment in American energy, infrastructure and markets that enable U.S. consumers to benefit from America’s reliable energy resources.”
That’s exactly what the Biden administration is doing. By moving to stabilize prices, the White House is looking to guarantee companies a favorable investment climate well into the future, in the hopes it will entice them to produce more. But far be it for a trade association for companies that generously funded politicians pushing the Big Lie to let reality impede it.
Ann Bradbury, CEO of the American Exploration and Production Council, or AXPC, responded similarly. “Pulling more crude from the Strategic Petroleum Reserve will only artificially lower prices for the short term and should not be a substitute for long-term policies to increase domestic crude supplies,” she wrote, accusing the White House of trying to “manipulate energy markets.” Presumably the preferred alternative would be to enact the group’s own wish list verbatim. “What the American people need is a collaborative approach from this administration that is focused on supporting domestic production of oil and natural gas,” Bradbury continued.
If only that were true. Instead, per Bloomberg, the White House has been quietly meeting with oil companies this week and over the last several months. Tim Stewart, of the U.S. Oil and Gas Association, took the opportunity to gripe about getting bad vibes from the administration, without providing specifics. “We remind the White House that they have taken dozens and dozens of actions that will make it much harder to produce those U.S. barrels that they intend to eventually buy back,” he said.
While the zeitgeist in climate policymaking has largely shifted away from carbon pricing—the White House now prefers to invest heavily in clean energy—the administration still seems to be acting as though energy markets behave like they do in economic models, where a certain price induces a certain response in producers. But as any number of statements from oil and gas executives over the last year have shown, they aren’t exactly homo economicus. They are by and large staunch Republicans prone to emotional outbursts and to pouring millions of dollars into defeating Democratic candidates up and down the ballot.
That’s not to say they don’t have material interests. Oil and gas investors are keeping a tight leash on executives after corporate spending binges through the 2010s on fracking—an extraordinarily capital-intensive process—burned through their cash. That left them vulnerable when prices crashed, and drove a number of companies either out of business or to the brink of insolvency. There are supply chain challenges to grapple with too. There’s reason to believe SPR releases and replenishment won’t change that, much less investors’ minds about constraining production. CEOs, though, would much rather blame Biden for handing them money than shareholders for being stingy with it.
It all underlines just how weird America’s prolific fossil fuel sector is. Just about every other major oil-producing country on earth exercises some sort of direct control over energy production, typically via state-owned production companies. Major oil producers also tend to keep prices low domestically. Because oil and gas production is wholly dominated by for-profit firms here, the most powerful man on the planet has to go begging to a rogue’s gallery of ideologues to drill more and sell their products more cheaply. Right now, there’s no reason why they would: Drillers are raking in record profits. There’s also relatively little danger that a Congress it has helped stock through campaign donations will try to recoup those profits through a windfall tax, let alone price controls.
Democratic leaders in Congress and the White House are also still shying away from any talk of directly reducing demand for fossil fuels, instead preferring to try boosting clean and fossil energy production simultaneously. Historian Gregory Brew, for instance, has suggested that a national oil refining company could alleviate short-term supply bottlenecks in a way that private companies are loath to do on their own. There’s also the all-American prospect of more sweeping nationalization, a tool used frequently throughout U.S. history in times of crisis, including to discipline the fossil fuel industry. Opting to guarantee drillers stable prices carries more than a few risks. They may not take the bait, and industry analysts are somewhat skeptical of the effect even sizable SPR releases can have in the short run. The release’s relationship to prices is even more abstract, meaning the political upsides for Biden could be limited.
Left out of the short- and medium-term politicking, though, is what all this means for greenhouse gas emissions. As soon as Russia invaded Ukraine—and was hit with sanctions—U.S. oil and gas producers started making the case for policies to ramp up domestic production and exports. They inked lucrative contracts with understandably nervous European governments, which rapidly rethought plans to phase out fossil fuels in the coming years. The popular line has been that these are temporary measures; any new gas infrastructure built now, for example, can simply be converted to handle “green” hydrogen, hailed as a silver bullet for decarbonization. While hydrogen energy is seen as a promising option for carbon-intensive industrial processes like steel production, it would be a massive undertaking to convert cars, heating systems, and even gas export terminals to handle hydrogen instead of methane gas—even if hydrogen could be produced cleanly at scale.
In short order, then, the United States and European Union—two of the places that should be ditching fossil fuels the fastest—are trying to rush through a fleet of new fossil fuel infrastructure that will stay online for decades to come. At least in the U.S., there’s no way to shut that down on an ecologically sustainable timeline without (at the very least) attaching strings to the subsidies now going out the door, including via the SPR. More broadly, though, the U.S. is fighting its battles around energy with at least one hand tied behind its back. There’s no way for Biden to reconcile his economic, political, and climate goals without challenging private domination of the energy sector. The good news is that its top brass will hate him either way.