For decades, American presidents and American consumers have complained when oil prices rose and rejoiced when oil prices fell. But this week, Donald Trump helped forge an agreement with Russia, Saudi Arabia and other oil production nations to raise prices by slashing production. Then he bragged about it.
“The big Oil Deal with OPEC Plus is done,” he tweeted. “This will save hundreds of thousands of energy jobs in the United States. I would like to thank and congratulate President Putin of Russia and King Salman of Saudi Arabia. … Great deal for all!”
Well, not all. Right now, pump prices are below $2 a gallon, down from a national average of $2.66 in January. In normal times, the decline would yield a handsome windfall for motorists. Most Americans aren’t driving much these days, but for those who have to, it’s a welcome consolation.
The administration, however, won praise for supporting the oil industry. Bob McNally, an analyst at Rapidan Energy Group, told The Wall Street Journal, “President Trump proved to be master of the deal.” Amy Myers Jaffe, a senior fellow at the Council on Foreign Relations, told The New York Times, “Hopefully, the American oil industry has avoided a worst-case scenario.”
Yes, the deal is good for that particular sector. But there are a lot more Americans who buy oil and gasoline than there are people who produce them. Ordinary people will foot the bill for Trump’s dubious triumph.
Most of the benefits, however, will go abroad, to the likes of Vladimir Putin and Mohammed bin Salman. That’s because Russia and Saudi Arabia have much lower production costs than oil companies that are fracking in West Texas and North Dakota.
As University of California at Berkeley economist Severin Borenstein has noted, if it costs an average of $40 a barrel to produce oil here and $10 a barrel in Saudi Arabia, raising the world price to $50 a barrel will yield a nice profit to our producers and a huge one to the Saudis. But Americans will pay more for all the oil they use.
Ryan Kellogg, a former oil company engineer and now an economist at the University of Chicago, says now is an especially bad time for this deal. “Increases in oil prices hurt consumers, many of whom now have reduced or even zero income but still need to drive to the store or run errands,” he told me. “The gains go to oil company shareholders and debtholders, and to royalty owners — folks that tend to be higher-income.”
Trump’s approach breaks with his predecessors. In 2011, Barack Obama released oil from the government’s Strategic Petroleum Reserve to offset supply disruptions from Libya, a move obviously aimed at keeping prices in check. George W. Bush did the same thing after Hurricane Katrina. In 1996, Bill Clinton put 30 million barrels of oil on the market because gas prices had risen.
Any method that would help motorists fill their tanks has always been attractive to politicians. During the 2008 presidential primaries, with prices rising, both John McCain and Hillary Clinton proposed to suspend federal gas taxes from Memorial Day to Labor Day.
Trump, by contrast, is overtly placing the needs of one industry above the interests of the average person. And no, he won’t be saving lots of jobs. Oil and gas extraction accounts for only about 145,000 jobs in the United States — far fewer than the economy was adding every month until recently.
The recent slump in oil prices signaled that something resembling a normal market was setting prices, a departure from the artificially high prices set by OPEC and its co-conspirators. That’s a good thing. But Trump wants to restore the power of that foreign cartel.
Last year, Rep. Steve Scalise of Louisiana, a member of the House GOP leadership team, introduced a resolution opposing a carbon tax — which is the most cost-effective and least disruptive way to deal with the problem of global warming.
He argued it would “mean that families and consumers will pay more for essentials,” “fall hardest on the poor, the elderly, and those on fixed incomes” and “increase the cost of every good manufactured in the United States.”
What did Scalise say about the Trump deal — which would have exactly the same consequences, but without the environmental benefits? He’s for it.
That’s the Republican plan: Billions to enrich foreign oil producers, but not one cent to combat climate change.
