Biden’s oil and gas price problem is a Russian-Ukrainian problem

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Have the crippling sanctions imposed on Russia in response to its war of conquest in Ukraine backfired on the West? This concern is being expressed across Europe and, increasingly, it is one shared by the administration of President Joe Biden.

Bloomberg News reported last week that the White House was “initially impressed” with the impact of the post-invasion sanctions regime on the Russian economy and the willingness of Western companies to voluntarily divest from the Russian market. But, as this history does not show, not only do these sanctions “exacerbate inflation” and “punish ordinary Russians more than Putin or his allies”, but Russia’s energy sector – by far the country’s largest revenue generator – did not suffer much at all. .

The Kremlin generates more revenue than it spends to wage war on Ukraine.

On the contrary, as The New York Times reported last Monday, “Russia’s fossil fuel revenues” soared during the war. While the country’s overall energy exports have declined in volume, the report notes that “soaring prices have more than offset the effects of this decline.” The Kremlin generates more revenue than it spends on waging war on Ukraine, and new, tougher sanctions on Russian energy due to come online soon may come too late to shape the outcome. this conflict.

Countering the influence of Russian energy is a fiendishly complex problem. It’s been decades in the making and it can’t be solved overnight. Moreover, the West’s willingness to outsource its energy needs to foreign producers means that we have ourselves to blame.

Putting downward pressure on energy prices is, I would argue, Biden’s most pressing priority right now, not only to limit Russia’s options in Ukraine, but also to dampen domestic inflation (because the cost of all goods is exacerbated by high energy costs). To that end, Biden has taken two seemingly contradictory approaches to the issue. On the one hand, he accuses “Putin’s price hike” of being the cause of the decline in Americans’ purchasing power. On the other, he accuses US fossil fuel producers of greed to make a profit on a high-demand product that is in short supply.

“In wartime – the historically high refinery profit margins passed directly to American families are not acceptable,” the president wrote in a letter to American oil refining companies like Exxon Mobil and Chevron. These “companies must take immediate action to increase the supply of gasoline, diesel and other refined products,” he continued.

But increasing domestic fossil fuel production would not only help ease inflationary pressures on the economy; exporting locally produced fuel would help offset the global dependence on oil states and their illiberal governments. Unfortunately, we have spent most of the last half-decade limiting our ability to meet demands like war in Europe.

At the end of 2018, the United States produced more than 20 million barrels of petroleum products (crude oil, natural gas and refinery derivatives) per day. In 2019, the United States surpassed Saudi Arabia’s production for the first time in decades, and forecasts estimated that the United States would become a net exporter of energy by 2022. Also in 2019, Iran-backed forces executed a sophisticated multi-drone strike on a Saudi Arabian oil processing plant, the culmination of a series of Iran-linked strikes on oil-producing targets in the kingdom and across the Strait of Iran. ‘Ormuz.

In previous years, an attack on one of the world’s most productive refineries would have crippled the global economy and even required an armed response from countries dependent on that supply. But the United States managed to stabilize world markets by releasing an unspecified amount of the country’s strategic reserves, and so the attack barely made an economic ripple. Not only has America’s energy-generating capacity weighed down the global economy, it may also have prevented violence.

A lot has changed in just a few years. As National Review’s Jim Geraghty observed, the onset of the pandemic artificially truncated global energy consumption, causing Americans to miss it as the country drastically reduced its capacity to refining. An accident in 2019 crippled the East Coast’s largest refinery, the Philadelphia Energy Solutions plant, and it was mothballed for good in 2020. In 2020, that diabolical year, five other U.S. refineries ceased producing petroleum products. Most of these facilities have transitioned or are in the process of transitioning to alternative fuels and biofuels processing facilities.

Reversing the decline of America’s domestic refining capabilities is only one facet of a comprehensive campaign against the influence of the world’s anti-Western petrostates.

Reversing the decline of America’s domestic refining capabilities is only one facet of a comprehensive campaign against the influence of the world’s anti-Western petrostates. But a comprehensive approach to tackling the global energy deficit that hurts Americans and advances Russian interests would force the Biden administration to take many steps it has avoided so far.

To the White House’s credit, the administration has already taken some welcome steps in this direction, albeit belatedly. In April, the administration relaxed an executive order that halted all new oil and gas exploration leases on federal lands, and the president abandoned his crusade to anathema the Saudi kingdom and its prince. heir, Mohamed bin Salman, a concession that closely matched a long-delayed decision by the Saudi Arabia-led OPEC+ cartel to increase production in July and August.

There are, however, many things the White House still refuses to do to ease the strain on US wallets. So far, the administration has not dropped its objection to granting drilling leases in the Arctic National Wildlife Refuge. He will not one day overturn an executive order prohibiting federal agencies from providing fossil fuel producers with “subsidies.” This will not allow three already approved offshore oil leases to go ahead, taking millions of acres of exploitable deposits off the table.

The campaign to isolate Moscow and decouple the global energy market from dependence on Russian exports is moving in fits and starts. Remarkable progress towards this goal has been made in an incredibly short period of time. But it was never going to be possible to fully offset global demand for Russian energy fast enough to prevent petrodollars from fueling Moscow’s war in Europe.

There is an alternative to the energy produced and exported by totalitarian states, and that is the energy produced and exported by liberal and democratic states. However, the West has spent decades sacrificing its productive capacity in the service of the idea that green energy is a sufficient substitute for fossil fuels. And where we needed to supplement our energy needs, we relied on the world’s most egregious human rights violators to supply the rest. It’s always been a diabolical market. Today, Ukraine absorbs much of the cost of the West’s hunger for Russian energy, but its people will not be the last to suffer from our illusions.

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