The recent rise in energy prices in general, and gasoline in particular, are complicated. There is not one factor alone that has created this crisis, however, this winter, across Europe and the United States, the revelation that energy policy has some bearing on national security has been hard to avoid.
It has become clear in 2022 that with a failure to prioritize reliable and affordable energy comes real world insecurity. When a market shock of the size and scale of the one caused by the Russian invasion of Ukraine occurs, it reveals the flaws that were already present in the energy system, but were going largely unnoticed.
Germany has recently been forced to acknowledge that its energy policy pathway wasn’t suited to ensuring the country had adequate capacity to meet its energy needs. Now, across much of Europe, countries including Belgium, France, and others work to shore up their energy policy to ensure reliability in the future.
Even though Russian oil constitutes only 8 percent of United States oil imports, we’re still participants in a global market. When the broader supply constricts without a commensurate decline in demand, prices will rise. That’s not to say that prices weren’t on the rise long before Putin’s invasion of Ukraine. Gas prices have been on the rise for months
Administration Policies That Discourage Energy Production
This crisis isn’t the result of one isolated event, or of a single policy decision. Rather, it is the confluence of events on the world’s stage and a pattern of poor energy policy choices.
It’s hard to say for sure whether or not the Keystone XL Pipeline would have been completed by now if it hadn’t been canceled. But, what we do know is that because the pipeline’s permit was revoked by a Biden day one executive order, there is no possibility of that new capacity flowing to gulf coast refineries anytime soon.
It’s similarly difficult to quantify the chilling effect that the administration’s ban on new oil and gas leases on federal lands has had on domestic production. Growth has stalled to a near standstill, although existing leases are still operating. Extending the timeline for states to approve or reject pipeline permits is another way in which this administration has undermined energy development. Policies like these produce uncertainties, and decrease investment in the resources we rely on. Companies are much less likely to explore these options if their unilateral cancellation seems like a reasonably likely possibility.
Another driver of the rise in gas prices is inflation. A government that has spent its entire term up until this point printing money shouldn’t be surprised by rampant inflation. The price of nearly every consumer goods has risen in recent months. The consumer price index for February was 7.9 percent higher than in 2020, and energy has experienced more than three times the price increase of other goods.
Lately, oil futures have begun to bounce back somewhat, seemingly in part because o the redoublimg of Covid-19 restrictions in China, and as markets adjust to the war in Ukraine. This may slow the rise in gas prices,but it’s hard to predict how significant this effect will be. The Biden Administration also has plans to release up to 180 million barrels of oil from the Strategic Petroleum Reserve, which amounts to about 1 million barrels per day over the next 6 months. This is expected not to have a large impact on prices, but is a move worth taking note of because the Administration is attempting to react to the political salience of high prices.
Ultimately, high gas prices have arisen from poor energy policy making meeting with the war in Ukraine and the already inflationary environment that was occurring in the wake of Covid-19 and the spending bills that were passed in its wake.
This piece was produced by Paige Lambermont, a Policy Associate at IER