Democrats are going to the brink on oil with American voters. This is more exciting than a demolition derby held on the edge of a cliff. House and Senate leaders Nancy Pelosi and Harry Reid have been standing athwart any new drilling off our coasts or in the Arctic National Wildlife Reserve like Horatio at the Bridge. Mrs. Pelosi will allow no oil-drilling legislation to come to the floor for a vote. Mr. Reid will permit no amendments to legislation he has proposed, himself. They are trying to run out the clock before Congress's August recess, when they can head for the tall grass, out of the spotlight's glare.
As a party, Democrats are "unalterably opposed" to new drilling. They claim their chief concern is protecting the environment, but their real motivation, as I (and others) see it, is political. They evidently believe keeping oil (and gasoline) prices high through the election will cause voters to blame Republicans - thus electing Barak Obama president and winning bigger Democratic majorities in Congress. It's a brinksmanship strategy that runs the risk of complete ruin if voters tumble, too soon, to the fact that Democrats are the ones keeping gas prices high.
A few months ago I wrote that the oil futures market was so overheated that the least signal on new drilling would crash it. I misapprehended only the speed of the crash. Otherwise, I am vindicated. Since oil hit $147 a barrel, around July 4th, it has gone as low as $120. This has not translated to commensurate reductions at the gas pump, as retail outlets are usually quick to raise prices but notoriously slow to reduce them. Gasoline should be down close to 60¢ a gallon for that $25 per barrel drop, but in our area the reduction has been only about 10¢. Retailers are clearly waiting to see which way the fish will flop. (Besides, why not rake in a little extra dough when you can?)
Two political events in the last three weeks - neither truly decisive, but both pregnant with future implications - have started a slide in oil prices. The event that triggered the price slide was President Bush's executive order, signed July 7th, which removed presidential impediments to drilling for oil off the east and west coasts of the continental United States, as well as in a small area of the Arctic National Wildlife Reserve where large oil reserves lie. Mr. Bush could have taken this action earlier, it is true, but he had stubbornly insisted that Congress act first. I believe this was to avoid taking the environmental "hit" about new drilling. But in the mid-summer he evidently figured oil was out of control, so he signed the order.
Oil fell $6 the day after Mr. Bush signed, even though legislation is still needed to reverse restrictions Congress itself has imposed every year for the last 20+ years. The executive order was a wise move. In the week following, oil fell over $15. The cat was out of the bag. There is mounting evidence that voters are beginning to catch onto who is holding up the train.
On July 29th - perhaps feeling heat from constituents who are sick of paying over $4 a gallon for gas - Senate Majority Leader Harry Reid introduced legislation that would release over 1 billion acres for drilling off the coasts of Alaska. It would also furnish new leases for oil exploration in the Gulf of Mexico. This sent oil down another $3, although it still does not open the east and west coasts of the USA, or the ANWR, to new drilling. In political terms, the legislation is a "diversion" from the main issue of off-shore and ANWR drilling. Its purpose is to make voters think Democrats are really "doing something" about oil. But the oil market is so nervous that even a suggestion that we might get serious sinks it. What will happen if we actually drill?
Today I read a report that quotes OPEC President Chakib Khelil as saying that world oil prices are "abnormal". He believes they could fall to at least $78 a barrel when the long-term political situation (i.e., Iran) improves. He did not mention Americans drilling for their own oil, but the effect of American politics on the market is plain to see. The price-slide is continuing, and stock market indices are rebounding. The issue is getting away from Democrats. Some of them are getting nervous, wondering if they might go over the cliff instead of Republicans.
I consider this one of the most amazing eras in American history because a major political faction actually seems willing to hurt the country to obtain political advantage for itself. Ironically, Democratic Party adherents are among those being hurt the most because so many of them are people on low or fixed incomes who suffer from high gasoline and fuel oil prices. I can think of no similar era in over 50 years of observing financial and political matters in this country. During much of that time, Democrats had strong congressional majorities. Republicans, in the minority, had a different vision for the country, but I cannot imagine GOP stalwarts Robert Taft, Nelson Rockefeller, Robert Dole, Gerald Ford or any number of others deliberately causing pain to Americans in order to "hurt" their political opponents. Things are different now, however. The times have a-changed.
The Democrats' high gas-price strategy might have worked, had Mr. Bush not messed it up by signing his order. This changed the political landscape and perturbed the oil markets. For several weeks Big Media have tried to downplay Mr. Bush's action by claiming that oil prices dipped "temporarily" because of increased supply or diminished demand. These might have been factors, but traders in oil futures didn't seem to recognize them until Mr. Bush effectively said, "By jingo, we need to drill." Now, the dam is (figuratively) beginning to give way. Voters are getting wise. The crash in both oil and political fortunes will be a lulu, when it happens. Look out below.