In this Presidential election, prices matter a lot, even though the inflation rate is down a lot. No price matters more than the “political perennial” – gasoline prices. The Biden administration will work hard to ensure that prices at the pump don’t flow into the ballot box, Daniel Yergin said in his new article in the Financial Times.
The most recent national petrol price is around $3.45 a gallon, which a top Biden adviser recently called “too high for many Americans”. It is when prices begin to approach $4 a gallon that the political heat really begins to rise. And they could well get there over the summer and into early autumn if crude oil prices go up. Any president running for election would be striving to damp down the cost of petrol in an election year. But at a time when prices in general are at the top of voter concerns, it will certainly be a key priority for the Biden administration to prevent prices at the pump from flowing into the ballot box.
Political incumbents get blamed for higher petrol prices, even if their influence is limited; and they try to do something about it. In September 2000, with vice-president Al Gore and Texas governor George W Bush locked in a close race and oil prices at a ten-year high, the Clinton administration released oil from the Strategic Petroleum Reserve. During the 2012 election year, when prices at the pump hit $4 a gallon, President Barack Obama travelled to Oklahoma where he, in effect, dedicated the southern part of the Keystone pipeline system, making sure to add: “My administration has approved dozens of new oil and gas pipelines.”
But the Biden White House has made far more use of the Strategic Petroleum Reserve than any previous administration. It began releasing oil in November 2021, when prices were rising quickly with the post-Covid rebound in demand. The purpose, said the president, was to help solve what he called the “problem of high gas prices”. Altogether it has drawn down over 40 per cent of the total supply that was held in the reserve when the administration began. It has, however, recently been gradually adding back some supply.
What tools does the administration have to respond to rising prices in the global oil market? The most obvious is further releases from the SPR. Another option is to reach out to Saudi Arabia to put more oil back into the market sooner rather than later. Riyadh may want to avoid undermining the OPEC+ framework that it has built. But it has also emphasised being responsive to changing market conditions, and it is clearly keen to advance the potential US-Saudi strategic partnership that is under discussion.
A further option would be to allow more flexibility in the production and distribution of the different summer grades of petrol. Some in Congress will inevitably urge banning petrol exports, as they have before, but that would be deeply damaging to the credibility of the US as a reliable energy supplier.
Daniel Yergin, author of The New Map: Energy, Climate, and the Clash of Nations; the Financial Times.