Biden, not “Big Oil”, is to Blame for Energy Price Spikes

“President Calls for Inquiry into the Price of Gas” reads a frontpage headline in November 18’s Wall Street Journal. President Biden apparently wants Americans to believe that the major producers and distributors of fossil fuel energy (“Big Oil”) are responsible for recent price increases at the pump and looming sticker shock on home heating bills. 

As President Reagan might have said, “there he goes again”. Seeking to duck responsibility for his own policy actions, Biden has asked Federal Trade Commission chairperson Lina Kahn, appointed for her relentless hostility to Big Tech, to launch an investigation into whether U.S. energy companies have conspired or engaged in other unlawful behavior to profit at the expense of consumers of gasoline, diesel fuel, and heating oil.

We’ve seen the same headlines before. Every time energy prices rise sharply—during OPEC’s oil embargoes of the 1970s, wars in the Middle East, and hurricanes on the Gulf or East Coasts that disrupt the industry’s drilling, refining, or distribution operations—the White House or Congress predictably reacts by pointing fingers at Big Oil, asking for reasons other than the normal workings of global energy markets. Over time, the FTC has subpoenaed and amassed hundreds of thousands of documents from the major oil-and-gas companies, by no means cheaply either for taxpayers or the companies themselves. Those investigations never have produced evidence of anticompetitive behavior justifying further legal action.

This time around, the Biden administration thinks that something nefarious must be going on because of an “unexplained gap” between the price of “unfinished gasoline” (before blending with ethanol and other additives) and prices at the pump, which have risen by three percent in one month. But, as every consumer knows, all prices have been rising recently (at more than a six percent annual clip) as the economy struggles to absorb significant expansions of the money supply, profligate federal spending, and cope with the supply-side bottlenecks caused by lockdowns and other counterproductive Sars-Cov-2 pandemic policies. Energy is the most volatile component of consumer price indexes.

The “unexplained gap”, which varies along with the supplies of and demands for gasoline and ethanol, is not a mystery. Washington’s ethanol mandate or renewable fuel standard (intended to buy votes from Corn Belt states) itself largely is responsible for it.

If he wants to explain why energy prices have been snowballing, President Biden should look in the mirror. Since taking office, he has cancelled the XL pipeline, which would have lowered the cost of moving crude extracted from shale oil deposits in Canada and the Dakotas to Gulf Coast refineries, banned further exploration and drilling on federal lands, and cancelled offshore oil leases. The president’s failed attempt to lessen the pain of his green energy policies by encouraging OPEC to expand production is laughable. 

So, too, is his announcement a few days later (joined by other western leaders) that crude oil will be released from national stockpiles of so-called strategic petroleum reserves. If that action is taken, the effects on fuel price will be only transient.

It is expedient to shift blame to “monopoly” or “market power” for economic effects that damage politicians’ reelection hopes. After all, “big is bad”, isn’t it? However, the first place to look for culprits to explain price increases for energy or any other good or service should be government.

As Edmund Burke once wrote, “The thing itself is the abuse!”

William F. Shughart II is a Distinguished Research Advisor and Senior Fellow at the Independent Institute, the J. Fish Smith Professor in Public Choice at Utah State University, past President of the Public Choice Society as well as the Southern Economic Association, and editor of the Independent book, Taxing Choice.
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